BELCO Shareholders' Letter

Hamilton, Bermuda, December 31, 2007 - "Dear Shareholder, This is my 56^th and final Quarterly Report to Shareholders of this great group of companies. It is a pleasure to advise you that the Board of Directors has declared a dividend of 21.25¢ per share for the fourth quarter of 2007.  A cheque is enclosed for shareholders who have requested direct payment.  Those who have designated a deposit to their savings or current account have been given credit effective today.  As of December 18, the market price per share was $21.00.

The Company has implemented a new share administration system which will now be compatible with the Bermuda Securities Depository (BDS) on the Bermuda Stock Exchange.  Should you notice any errors, in either your name or address information, please bring them to the attention of Mrs. Jean Kromer at 295-5111 ext. 1213.  We apologize, in advance, for this unwelcome by- product of the initial file importation and appreciate your patience.

BELCO

Total kilowatt hour (kWh) sales through November are 2.02% ahead of the same period in 2006. Demand customer usage increased 2.01% and sales to small commercial customers were 2.80% higher than in 2006.  This increase is attributed to a combination of new customers and higher consumption. In the residential sector, sales were 1.72% ahead of the same period last year. This is the result of the addition of new residential units, as average consumption is slightly lower than 2006, at 736.89 kWh per month, versus 739.81 last year. 

Energy Planning

As you are probably aware, in November, BELCO filed an application with the Planning Department for the complete expansion and rebuilding of the Pembroke power plant site through 2030. This application followed two years of consultation with Government and other stakeholders on topics contained within our Electric System Discussion Document, which provides energy supply and delivery options to be considered in order to meet Bermuda's future energy needs.

Given that there are no other alternatives for large-scale energy production available at this time, and that no other appropriate site has been made available for the next required expansion, we have no choice but to proceed with the planning application for a phased re-development of our Pembroke site in order to meet the 2011 projected increase in demand for electricity.  The planning application filed last month outlines a 20-year development program, with construction in eight phases over that period, and as demand requires. The plan is flexible and will be adjusted every three to five years to take into account other technologies and options that we expect will become available over time. However, the first critical date for which plans need to be solidified is summer 2011, when we project Bermuda's demand for electricity will require an additional 28 megawatts, in the form of two new 14 megawatt engines. Without this additional generating plant, BELCO will not have the redundancy needed to ensure reliable supply in the event of an engine breakdown or the need to take any engine out of service for maintenance.  

The reason we have submitted an application that covers the 20-year period is because the current BELCO site is congested and in order to accommodate the next installation, we will have to re-configure the site. This includes demolishing the existing fuel tanks and creating a new fuel tank facility on property on the northwest portion of the site, and demolishing our transport/garage facility and building the new power station there.  This re-configuration has required that we develop a long-term plan that takes into consideration how the property will be re-developed into the future, as older engines are retired and replaced with new plant.  

If approved, the first phase of construction will mark the beginning of a new, North Power Station with one emissions stack, comparable in size to the East Power Station stacks. In tandem with the submission of the planning application, BELCO is also requesting that the Ministry of Works & Engineering permanently close Cemetery Road from the Animal and Garden House to Cemetery Lane.  The closure, which would not affect the Cemetery, is being requested in the interest of power plant security, public safety and safety of BELCO employees. In any event, the actual power plant construction planned between 2008 and 2030 will require that section of Cemetery Road to be closed for a minimum aggregate period of 9.25 years.

Over the next 9-10 years BELCO will be required to invest approximately $497 million in energy infrastructure in order to expand its supply and delivery capabilities to reliably meet Bermuda's increasing demand for electricity. To put this in perspective, present net book value of BELCO's utility plant and assets is $241 million.

In addition to the development of new generating plant, this investment is required for transmission and distribution system upgrades, the incorporation of renewable energy (small and large scale), and increased investment in people to service the expanded facilities that are required. 

In support of this necessary investment in Bermuda's energy infrastructure, the Company applied to, and received approval from, the Price Control Commission for an overall increase in rates of 2.5% per year for the next four years, beginning in 2008, and 3% per year for a fifth year. The average Consumer Price Index (CPI) is 3.1% per year. BELCO's requested increases are below the average CPI.

Energy is no longer a localized issue but one that impacts all of Bermuda and should be the focus of a cohesive long-term Energy Plan that makes provisions for land requirements for electricity production, as well as delivery.  This includes not only power plant development, but also land for small substations to distribute power and the setting aside of appropriate land for receiving renewable ocean energy that will likely be available in the future.  In the meantime, in addition to the current planning application, BELCO has established a micro-renewable energy beta site and is developing its small scale renewable strategy and policies. We also continue to monitor developments in ocean current technologies and other large-scale renewable options to incorporate into our on-going planning activities.  

We are hoping that approvals for the first phase of development will be agreed no later than the end of the first quarter of 2008, as we need to contract for the first two new engines by the second quarter of 2008 in order to ensure we will be able to meet Bermuda's 2011 demand.  In the meantime, we will continue to work with Government and the community to find alternatives and solutions that will give us better options to meet the next critical deadline for power, which we anticipate will come in 2013.

Community

This month marked the 12^th Festival of Lights for Charity competition.  This year the competition attracted 33 entries, and to-date has generated $118,300 in donations to a wide variety of charities by BF&M Insurance and BELCO who make the donations on behalf of the winners. Those who participate in the Festival of Lights Competition bring a great deal of holiday cheer to the Island, and we are very pleased to co-host this event to thank them for their creative efforts.

Farewell

As stated at the beginning of this letter, this is my last Quarterly Report to Shareholders of BELCO Holdings Limited.  As was announced this time last year, my retirement as President and Chief Executive Officer of the holding company is effective today. I am also retiring from the Board of Directors. A.L. Vincent Ingham, who succeeded me as President and Chief Executive Officer of BELCO on July 1, 2007, assumes the post of President and Chief Executive Officer of BELCO Holdings Limited on January 1, 2008.  

As I look back over my past 22 years at BELCO, 14 years as President and Chief Executive Officer, I am proud of the accomplishments the Company has made, and the commitment that all of those involved have consistently exhibited during some of our tougher times. Our operating philosophy is one of always seeking ways to improve our performance. We set specific targets and objectives for ourselves, and difficulties are lessons learned. The Company has gone from strength to strength in terms of both its financial position and standing in the community.  I am particularly proud of the internal cultural shift that has taken place within BELCO, from a company with a monopolistic outlook to one that is customer focused and continuing to challenge itself to find new and better ways of meeting the community's energy needs. I have personally enjoyed being involved in the establishment of BELCO's title sponsorships of the Visitor Industry Partnership (VIP) Awards, the Rubber Duck Derby in support of Agape House, Pride's Red Ribbons campaign, the BELCO Cup cricket events and the Festival of Lights competition that benefits charities.  Beyond providing financial support for these events, our involvement includes physical participation and opportunities to develop community relationships with those we serve.  In fact, as I look back it will be the relationships I have enjoyed with shareholders, employees and members of the community that I will cherish most. 

In closing, please accept my personal appreciation for the support all of you have shown to me over the years, and I know you will extend that same support to Mr. Ingham and his executive and management team.  On behalf of the Directors, Management and staff of our companies, we wish each and every one of you a happy, healthy and successful New Year."

Yours Sincerely,

Garry A. Madeiros

President & Chief Executive Officer