2nd Quarter 2008 Report to Shareholders

June 30, 2008

Dear Shareholder,

The Board of Directors has declared a dividend of 21.25¢ per share for the second quarter of 2008. 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 June 19, the market price per share was $21.05. In a recent meeting, our Directors authorized a share re-purchase program. On June 3, 2008 the Company advised the Bermuda Stock Exchange that it intends to initiate a share repurchase program to buy back 75,000 common shares as they become available. Shares will be purchased on the open market when it is felt that they are at an attractive investment price.

The Annual General Meeting (AGM) of the Company was held on Thursday, May 22, 2008 at the Bermuda Underwater Exploration Institute. The annual report was accepted. Shareholders agreed to re-elect the existing Directors, and PricewaterhouseCoopers were reappointed as auditors for the ensuing year. Following a presentation by legal firm Conyers Dill & Pearman, shareholders approved an up-dated set of Bye-Laws of the Company. The Company also announced the establishment of a new BELCO Holdings Limited subsidiary, PurEnergy Renewables Ltd. PurEnergy has been established to offer design and installation of customized small scale renewable energy systems to the residential and commercial markets. The renewable systems incorporate a hybrid solution of solar photovoltaic (PV), solar thermal and, where applicable, wind. A specific focus of PurEnergy is the promotion of quality, sustainable systems that can be relied on as continuous renewable contributors to Bermuda's energy mix.

BELCO
Customers are continuing to conserve electricity in response to the high price of fuel. Conservation, made easier by mild temperatures, resulted in total kilowatt hour (kWh) sales through May 1.12% lower than the same period in 2007. Demand Customer usage was 2.86% higher than in 2007, largely due to the completion of new commercial buildings. Residential sales decreased 5.56% when compared to last year, this despite a 2.02% increase in the number of residential customers. Average monthly residential customer usage is down 7.43% from an average of 695.17 kWh in 2007 to 643.52 during the first five months of 2008.

Fuel prices continue to escalate. Heavy Fuel Oil which represents 82% of our consumption cost $116.39 per barrel this month, a 2.85% increase over the previous price paid for the April shipment. The next shipment of Diesel Fuel at $185.47 per barrel is 43.64% higher than the last price paid in November 2007. This total cost includes shipping, Customs Duty, wharfage and through-put fees. In addition to trying to get the best price for fuel, BELCO continues to concentrate on maximizing plant efficiency to reduce the usage of fuel. The increasing price of fuel will continue to drive higher Fuel Adjustment Rates, and we are urging customers to be aware of and efficient in their energy usage. Energy efficiency tips are available at www.belco.bm.

Bermuda Gas
Bermuda Gas overall sales through May 2008 are 4.3% ahead of the same period last year, mainly the result of the increased price of propane fuel. Gas sales are 9.6% higher, while appliance sales are 6.6% lower. Service, labor and parts sales decreased 1.3% compared with 2007. We are pleased to report that three trainees have recently completed service technician training at Texas State Technical College and are working with Bermuda Gas.

The New Energy Equation
Developing a sustainable energy platform requires a collective endeavor that fairly rewards the investor and empowers the consumer, while balancing the needs of the present and future in support of reliable, secure and affordable electricity for decades to come.

The BELCO group has over the last 100 years faced many challenges, and we are once again facing an uncertain future given, rising fuel prices, climate change, regulatory and competitive influences, investment risks and an aging workforce. But, the future also offers much promise; government's commitment to the re-development of our tourism infrastructure, emerging large scale renewable technologies, our proposed development of a new electric power system, managing a global perspective, and our energized workforce.

BELCO Holdings remains committed to investing prudently to meet Bermuda's growing demand for energy services, while also ensuring that we continue to provide reasonable returns to our shareholders. Over 100 years BELCO has successfully delivered a secure, reliable and sustainable power system for the people of Bermuda, and Bermuda Gas holds a dominant position as Bermuda's propane gas distributor. We believe as we prepare for the future that we must look globally, as we plan locally to meet Bermuda's short and long term needs.

At the 2007 AGM, we presented to shareholders our Electric System Discussion Document – which was the prelude to development of our Energy Plan in the 4th Quarter of 2007. The Electric System Document highlighted the timelines for installation of new electricity supply generating plant – in order to ensure that we can continue to reliably meet Bermuda's need.

Beginning in 2005, and up until the development of the Energy Plan – the Electric System Discussion Document was presented to government, numerous individual government departments, the business community and many other stakeholders in an attempt to stimulate discussion on decisions that needed to be made in order for us to consider options to further development at the Central Plant location. The decision-making timeline was then, and still is, the requirement for installation of new generating facilities in time for the summer of 2011.

Currently, we have the generating capacity to meet the expected demand in 2011. However, what we will not have is a level of reserve plant to allow for planned-and unplanned outages. This means that unless all of our plant is available for running all of the time, there will be shortages and a probability of power outages. As we all know, our community relies on a continuous and reliable supply of electricity, so this is unacceptable.

Given no identified alternatives to our Central Plant concept, we submitted our planning application to Government in November 2007. BELCO's application currently before the Planning Department, outlines a development plan for the Central Plant site in eight phases through 2030. The application is for the development of diesel engine installations and gas turbines. However, this plan is flexible and can be adjusted every three-to-five years in order to incorporate opportunities for renewable technologies and alternative generating plant locations.

We will continue to look for alternatives to our Central Plant site that could provide for distributed generation at the ends of the Island, supplementation of power at large development sites, the incorporation of small-scale renewable power, possible use of other fuel sources and integration of new technology yet to come. We hear the concerns of our neighbors, and we will try to be responsive. As a community we need to identify and agree to alternatives.

We believe that renewable energy must be a part of our future and as fuel prices increase, along with concerns about climate change and sustainability, the time to agree to changes is now!

In the absence of any immediate large scale renewable energy option, we are proceeding with a strategy to promote small scale renewable energy solutions into Bermuda's overall mix. We are doing this with a long-term vision.

BELCO Holdings Limited new subsidiary business PurEnergy Renewables Ltd. has as its focus hybrid combinations of small scale renewable technologies, specifically Solar Photovoltaic (PV), Solar Thermal Water Heating and small wind turbines which will be designed and installed with sustainability as the primary objective.

Our view of sustainability is focused on two levels. Firstly, from the customers perspective – PurEnergy will provide customized designs that will allow individual home owners to not only reduce their dependence on fossil fuel generated electricity, but also, by design, provide for householders' critical loads in the event of a prolonged outage, such as in the aftermath of a hurricane. We have defined the critical loads as refrigeration, pumping water, water heating, fans, lighting and some entertainment. These are items that will comfortably sustain a family in the event of an outage.

Additionally, from our perspective as the lead energy provider, sustainability encompasses much more than just meeting the immediate needs of the customer. We believe, and we have expressed this view to government, that all energy contributions to the grid must be properly integrated into our existing system, must be sustainable and must be counted upon as a sum of the whole in terms of planning how to continue meeting Bermuda's overall needs.

In other words, if PurEnergy and/or others can convert two megawatts of demand from traditional to renewable supply, then that will be two megawatts BELCO will subtract from its Energy Planning Equation. This means that all renewable contributions accepted to the grid will need to be maintained and counted upon into the future. BELCO is currently working on its grid connection policy and will be making an announcement within the coming months.

In addition to this small scale renewable energy initiative, we are also actively involved in discussions on numerous other fronts. These discussions are specifically addressing medium and large scale renewable technologies including, photovoltaic (PV), ocean technologies and waste-to-energy. While we have not totally eliminated wind as an option, suitable off shore sites, availability of equipment and limited off-shore construction capability pose many challenges.

Globally, international concerns about climate change and fuel volatility are driving an increased investment in renewable power, and a "Rush-to-Market" with alternative fuels and new technologies. We believe the best solution is yet to come. In addition to discussions on several present alternatives, we are also actively tracking new technologies and developments including wave, biofuels and Pebble Bed Nuclear.

We believe this is the most exciting, challenging and opportune time to be in the Energy Business and we remain committed to moving our companies forward so that we continue to provide a secure, reliable and sustainable electric power system for the people of Bermuda.

In closing, on behalf of the Company, I would like to welcome Donna L. Pearman, B.Sc. (Pharm), President of People's Pharmacy to the BELCO Holdings Board of Directors. A successful businesswoman who is well respected in the community, we are confident Mrs. Pearman will be a great asset to the Board.

Yours sincerely,
A.L.Vincent Ingham
President & Chief Executive Officer