Belco Releases Letter To Shareholders

Hamilton, Bermuda:  31^st March 2005 - Belco Holdings Ltd. has today released to the Bermuda Stock Exchange (BSX) its most recent letter to shareholders.

"The Board of Directors has declared a dividend of 38.5¢ per share for the first quarter of 2005.  A cheque is enclosed for shareholders who have requested direct payment.  Those who designated a deposit to their savings or current account have been given credit effective today.  As of March 23, 2005 the market price per share was $42.00.

The Annual General Meeting of BELCO Holdings Limited will be held on Thursday, April 28 at 2:00 p.m. at Bermuda Electric Light Company Limited (BELCO) headquarters, 27 Serpentine Road.  We encourage you to attend.  The Annual Report is being prepared and is scheduled to be mailed by April 14.

BELCO Holdings Limited ended 2004 with consolidated net earnings 7.03 percent ahead of the previous year at $18,482,511 compared to $17,268,247 in 2003.  These positive 2004 results are despite a slow start to the year as the Island was still recovering from Hurricane Fabian with several commercial customers remaining closed for repairs and renovations early in the year.  Our shares performed very well in 2004, closing the year at $41.80, up 18.6 percent over the previous year's closing price of $35.25.  Earnings per share increased to $3.62 in 2004 from $3.39 the previous year.

BELCO

Driven primarily by an increase in residential electricity sales, BELCO ended 2004 earning $17,312,102, compared with $16,322,519 in 2003.  Total electricity sales revenue increased 3.3 percent to $148,837,333.  This included an 18.69 percent increase in fuel adjustment revenue of $4,096,252 to $26,007,761, a direct result of higher fuel costs. The increase in fuel adjustment revenue is offset by an identical increase in fuel cost.  In 2004, overall kilowatt hour (kWh) sales increased 0.84 percent. Commercial sales decreased slightly, 0.52 percent, from 2003, while Residential sales increased 2.59 percent. 

BELCO's 2004 expenditures increased 3.57 percent. This included $56,607,998 in fuel costs and purchased power from the Tynes Bay Incinerator plant, an increase of 7.8 percent. The average price per barrel of fuel increased 5.9 percent in 2004 to $55.18 from $52.09 the previous year.  Overall generation expenditure increased significantly in 2004 as foundation problems on two large engines, coupled with tighter than normal plant capacity in the lead-up to the installation of two new base-load engines, resulted in the Company incurring additional costs to ensure reliability of supply during the summer months.  The foundation problems were subsequently rectified, however, in the lead-up to the summer, the Company undertook an accelerated maintenance programme, and during the hottest months, instituted extended staff hours in the generation plant to allow for immediate response to any unplanned engine outages.

BELCO invested $40,689,997 in Property, Plant and Equipment in 2004.  This includes $25,208,511 on the East Power Station extension for the addition of two new 14.5 MW diesel generator sets, a projected total investment of approximately $45 million. These two new units are currently undergoing commissioning tests and are due to be brought online in spring 2005.  The Company also invested $11,789,577 in the transmission and distribution system, including the new St. John's Road Substation and upgrades to the underground transmission system from the BELCO plant through Dundonald Street to the eastern portion of the City of Hamilton.

Bermuda Gas

Bermuda Gas & Utility Company Limited ended the year with net earnings of $1,128,138, a 2.7 percent decrease from 2003. This was due primarily to staff transitions in the Appliance, and Service and Parts Departments, which required some outsourcing of services resulting in additional expenses.

Early this year, Bermuda Gas moved to a new location at the Stables Building on Reid Street extension.  The Wesley Street premises that had long been home to Bermuda Gas are being renovated from retail to office space.  Bermuda Gas is continuing to look for a suitable retail location closer to the centre of the City of Hamilton.

Energy Costs

Since the beginning of the year, the cost of fuel has continued to spiral to record levels, increasing the cost of electricity and propane gas.  The most recent shipment of fuel to BELCO, earlier this month, was $83.59 for diesel and $55.03 for heavy fuel, the highest diesel price to date. Heavy fuel oil reached its highest price in 2004 of $56.47. The cost of fuel is reflected in the fuel adjustment portion of the electricity bill, and for the past several months has been at 5.3¢ per kilowatt hour of electricity consumed, accounting for approximately 25 percent of customers' bills.

The cost of fuel for BELCO is essentially made up of two parts:  the actual cost of the fuel that we purchase on the world market and a Customs Duty of $15.10 per barrel. 

Built into the tariff rates, which do not fluctuate, is a base cost of fuel of $30.00 per barrel.  However, the actual price of fuel can be higher or lower, so the difference is either added to, or subtracted from, monthly bills as the Fuel Adjustment Charge.  The calculation, and the market price of fuel used in the calculation are reviewed and approved by the Price Control Commission each month.  Additionally, BELCO advertises the rate monthly. 

Fuel adjustment charges are used throughout the world by utility companies to adjust customer bills according to fluctuations in the price of fuel.  Fuel prices are the most volatile factor in electricity rates.  By adjusting the portion of the charges that a customer pays to match the cost of fuel, BELCO minimises the effect of fluctuating prices of electricity and the need to ask continually for rate revisions from the Price Control Commission.  BELCO does not make any more or less money as a result of the fuel adjustment charge.

Unfortunately, BELCO has no control over, or influence on, the price paid for fuel. The only control our customers have is through individual efficiency and conservation.  We do not expect to see fuel prices reducing in the short-term and recommend conservation, where appropriate, as a cost saving measure. 

Fourteen years ago, we presented a public programme at Number One Shed titled "The Source of Your Energy - Planning Options through 2008".   The purpose was to stimulate discussion on the many issues vital to meeting Bermuda's future energy requirements, including options for alternative energy generation.  We are currently working on our next long-term generation study and, given the volatility of world fuel prices and improvements in wind turbine technology, we have recently commissioned an updated economic analysis of off-shore wind generation as a possible component of our future generating plant mix. 

Community Support

BELCO was once again very pleased to be the title sponsor of the Visitor Industry Partnership (VIP) Excellence Awards at the Fairmont Southampton Princess Hotel on March 19.  Over the past six years the event as grown in popularity and esteem as it recognises, promotes, and encourages excellence within our hospitality industry, a vital component of our economic and social fabric. 

We encourage everyone in Bermuda to support the efforts of those who are working hard to promote tourism here and abroad.  Whether working directly in the industry or not, it is often the friendly, polite and welcoming exchanges that local individuals have with visitors that give visitors their most cherished memories.  Therefore, we are all collectively responsible for the tourism product and the impression we leave upon those who visit our beautiful Island.

Please remember that the Annual General Meeting will be at 2:00 p.m. on Thursday, April 28, and I hope to see you there."

Signed by,

Garry A. Madeiros

President & Chief Executive Officer