BELCO Advises of Annual Results In Regular Letter To Shareholders

Hamilton, Bermuda, March 30, 2006 - The Bermuda Stock Exchange has been advised by BELCO of the following regular letter to shareholders as follows:

March 31, 2006

Dear Shareholder,

The Board of Directors has declared a dividend of 40.5¢ per shared for the first quarter of 2006. This effectively increases the annual stock dividend rate from $1.54 to $1.62 per share. The last dividend increase was a 10 percent stock dividend given in December 2002, and prior to that, the last dividend increase was in 2000. 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 22, 2006, the market price per share was $39.00.

The Annual General Meeting (AGM) of BELCO Holdings Limited will be held on Monday, May 8, 2006 at 3:30 p.m. at the Bermuda Underwater Exploration Institute.  The AGM will be followed by a presentation of excerpts from BELCO's Electric System Discussion Document, which was developed over the past 18 months to provide a basis for discussions with stakeholders, as we plan for the next 20 years of energy supply and delivery.  In recognition of BELCO's 100^th anniversary, a cocktail reception will follow the presentation.  Please join us to view the presentation, discuss the future and celebrate the past. We look forward to seeing you there.  The Annual Report is being prepared and is scheduled to be mailed the week of April 17.

BELCO Holdings Limited's 2005 financial results have been impacted by the effect of the July 14 fire that destroyed two switchrooms.  During the year, a total claim of $16,776,000 was submitted by BELCO to the insurers, of which $12,901,078 is anticipated to be the settlement.  This amount has been incorporated into the 2005 financial results with $4,783,038 being applied to offset direct expenses incurred due to the fire. The remaining $8,118,040 will be applied to the cost of construction of the replacement facility, which is expected to cost $10,738,081.

The two switchrooms destroyed by the fire had been fully depreciated, hence they had no book value, but they were insured for replacement value. Generally Accepted Accounting Principles of the Canadian Institute of Chartered Accountants requires the insurance proceeds to flow through the Consolidated Statement of Earnings. This has resulted in the insurance settlement net proceeds of $8,118,040 for the replacement switchroom, which had no cost to be offset against, increasing the level of Consolidated Net Earnings to $28,539,158.  This is very misleading as all of these funds will be applied to the construction of the new facilities. These accounting rules portray a view that the Company has profited from the fire, which is far from the truth.  In fact, the Company still has a shortfall

of $3,874,922.  Unfortunately, the effect of this accounting requirement is to distort the real earnings and comparisons from year-to-year.

BELCO Holdings' Consolidated Net Earnings from normal operations is $20,421,118, an increase of 10.49 percent over the $18,482,511 recorded in 2004. These results are attributed to consistent electricity load growth in both the commercial and residential sectors, a 1.5 percent increase in basic rates for electricity, the first in nine years, and a solid contribution from Bermuda Gas. Also contributing to this result was the sale of property in St. George's and earnings from BELCO Holdings' 51 percent interest in BELCO Energy Services Company Limited (BESCO), which was sold late last year to the New Venture Holdings Group. Earnings per share from normal operations ended the year at $3.98, up 9.94 percent from 2004. The market price per share was down slightly from $41.80 in 2004 to end the year at $40.35.

BELCO

BELCO ended the year earning $19,164,725 from normal operations, compared to $17,312, 102 in 2004. Overall kilowatt hours (kWh) sales increased 3.64 percent.  Commercial sales were 2.98 percent ahead of 2004. Residential sales increased 4.27 percent.

BELCO's 2005 operating costs increased 11.46 percent to $143,090,498.  This included $66,173,651 in fuel costs and purchased power, an increase of 16.9 percent over 2004.  The average price per barrel of fuel increased 18.27 percent to $65.26 from $55.18 the previous year.

Two new medium speed diesel engines brought into service in April 2005, with the completion of the East Power Station extension, are responsible for improvements in fuel efficiency from 654 kWh per barrel in 2004, to 678 kWh per barrel in 2005.

During 2005, BELCO invested $23,540,695 in Property, Plant and Equipment.  This included $8,029,546 applied to the cost of  the East Power Station,  a $45 million project that was completed under budget at $41.1 million.  There were also significant upgrades and improvements to the transmission and distribution system totaling $8,128,171, which included the new substation on St. John's Road that was brought into service in November.

Bermuda Gas

Bermuda Gas ended the year with net earnings of $1,093,421, a decrease of 3.08 percent from 2004. This is due in part to the write-off of inventory of $97,000 identified during the move from its old warehouse, as well as a reduction in residential appliance sales due to difficulty in accessing merchandise as New Orleans, rebuilding after hurricane devastation, is being given priority for appliance shipments.  A highlight of the year was the completion of the kitchen at the new restaurant at Belmont Hills Golf Club, where Bermuda Gas provided the full range of appliances and value-added support.

Agreement to Purchase Renewable Energy

In February 2006, BELCO entered into an agreement with Current to Current Bermuda Limited to purchase up to 20 megawatts (MW) of electricity to be generated from ocean currents. The first 10 MW of power is due to be available to BELCO by the end of 2007.

Current to Current Bermuda Limited is an exempt subsidiary company of the U.S. firm Current to Current Corporation based in Massachusetts. The agreement will bring to Bermuda innovative applications of proven technology to provide large-volume, continuous power generated by underwater submersible units, similar to a submarine.  The submersible, measuring 150 feet long and 200 feet wide, will be sunk between 197 and 656 feet below sea level, past the first level of plankton, well within clearance of marine traffic.  The electricity produced will be delivered back to the Island through underwater cables to a landing facility on shore. The overall environmental impact is expected to be very low, as the blades on the Current to Current system turn slowly, allowing sea life to swim safely through.

The Bermuda Biological Station for Research is conducting current-flow tests south of the Island to determine the best location for placement of the submersible unit.  This will also determine the most suitable location for the landing site.

Bermuda will be the site of first deployment of the Current to Current system. As we look to the future, we are committed to including renewable energy in our overall electricity generating mix.  There is still much that needs to be accomplished before the Current to Current system has a chance to prove itself, but we are pleased that BELCO has been given an to opportunity to support this technology as a customer. The potential of purchasing up to 20 MW of electricity would provide a significant renewable energy contribution to our overall capacity.  The timing of this partnership is excellent, as our forecast anticipates the need to add generating capacity to our system by 2010. 

Electric System Discussion Document

The completion of the final phase of the East Power Station in 2005 marked the end of a 20-year development programme.  Following 18 months of preparation, earlier this quarter, we began sharing with Government and other stakeholders, an outlook of the energy options we believe are feasible as we plan for the next 20 years of electricity supply and delivery. BELCO is not a legislated monopoly but by default, has been Bermuda's sole electricity provider.  We do not expect this status to continue, and as we have already demonstrated through our power purchase agreement with Current to Current Bermuda Limited, the future will see us entering into partnerships to diversify our energy supply mix. 

As we look ahead, we will be weighing opportunities for distributed generation that will see the development of electricity generating sites outside of our current location. This includes adding renewable components to our energy mix, and taking advantage of opportunities where the Company and our customers can realise greater benefits. Distributed generation facilities could be developed by BELCO, in partnership with others, or by individual customers meeting their own needs and selling excess supply to the grid.  On a large scale, options for distributed generation include the possibility of BELCO building and operating additional fuel oil driven generation plants at alternative locations.  Some possible sites are Morgan's Point, Dockyard, Southside and ESSO at Ferry Reach.  Distributed generation on a small scale, either owned and operated by BELCO or a customer, could offer additional revenue potential, particularly in locations where large customers within close proximity could benefit from the steam and water by-products of Combine Heat and Power (CHP) installations.  For example, a CHP plant at Bermuda College could provide steam and water to nearby hotels and the hospital, while also serving as a practical study site for future power plant employees.

Our planning embraces the future, and recognises that it will be considerably different than the past. Our Company is, therefore, proactively preparing for a new business model that will allow us to take advantage of opportunities that the future will bring.

Labour Relations

Change is inevitable and it often brings misunderstandings and difficulties. Such was the case this quarter when BELCO experienced unprecedented labour action. Over the past several years, we have been working hard to prepare the Company for a less certain future. Our goal is to continue to be the electricity provider of choice in Bermuda, well into the future.  In order to achieve this, we have continuously focused internally to improve the way we operate and identify opportunities to equitably improve productivity, efficiency and reduce overall costs.

The Collective Agreement negotiated with the Electricity Supply Trade Union (ESTU) in 2004 included an agreement to work together to develop a new wage scale and job classification system for the bargaining unit.  A similar initiative had already taken place for the salaried group. The intention was to readjust job classifications and wages to better align them with current operational practices and technical abilities and requirements. As with the salaried group, adjustments to positions in the bargaining unit would have meant that some jobs would be upgraded based on their current value proposition, while others would be downgraded. The 2006 wage increase for the bargaining unit was pegged to the new wage scale and reclassification formula.

Unfortunately, we ended last year without having reached agreement on a new formula and as a result, the 2006 wage increase for the bargaining unit, originally due to take effect in January, was postponed. In response, at the beginning of the year the ESTU filed a 21-day strike notice.  With the assistance of the Government Labour Relations Office, prior to the end of the strike notice period, agreement was reached on an across-the-board wage increase. As everyone in the bargaining unit was given at least a base increase with no reposition of jobs, the overall effect on the Company was more costly than had been planned.

Aware of the effects that high operating costs have on our customers, BELCO is reassessing the value of keeping certain functions internally, versus outsourcing. There have also been discussions with the ESTU to consider an extended work week in certain areas to reduce overtime and better reflect the requirements of a 24-hour, seven-day operation.  In February, five positions in the housekeeping section of the Energy Supply Group were made redundant in favor of outsourcing.  This resulted in an unprecedented one-day labour disruption. Following several meetings with Government's Labour Relations Office, an agreement was concluded that is supported by both the ESTU and management. The employees, whose jobs were to be outsourced, were reinstated under a new set of performance expectations and standards, and with a work schedule that will provide cost reduction benefits with job continuance.  The new arrangements will be evaluated jointly by management and the ESTU at the end of six months to determine further continuance based on achievement of performance and economic results.

The labour issues we experienced this quarter have been very disturbing for the whole organisation, however, out of this has come a clear path forward for both parties to work together for the benefit of the entire organisation.  We look forward to working with the ESTU to continue to improve the performance of our organisation and restore good labour relations for the benefit of all.

Yours sincerely,

Garry A. Madeiros

President & Chief Executive Officer