4th Quarter 2008 Report to Shareholders

31 December, 2008

Dear Shareholder,

The Board of Directors has declared a dividend of 21.25ยข per share for the fourth 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 16 December, the market price per share was $16.00.

Throughout 2008, we have corporately pursued our Integrated Energy Model. The 2008 incorporation of our new subsidiary PureNERGY Renewables Ltd., specialising in small-scale renewable energy solutions, is a substantive component of what we view as the "New Energy Equation".

New Energy Equation
We are promoting a combination energy solution, comprising traditional power generation, large-scale renewable energy technologies, small-scale renewable energy applications and distributed generation, including combined heat & power installations as a part of large commercial developments.

We are promoting a combination energy solution, comprising traditional power generation, large-scale renewable energy technologies, small-scale renewable energy applications and distributed generation, including combined heat & power installations as a part of large commercial developments.

Our strategy is to target meeting 20 percent of Bermuda's energy requirements with renewable energy technologies by 2020. In an effort to achieve this, in September 2008, BELCO issued a Solicitation of Interest (SOI) for Large-Scale Renewable Energy (LSRE) projects. The SOI was promoted locally and internationally, invitations to companies that had made earlier representations to us. The SOI was also available on our micro-website www.empoweringprogress.bm. By the 14 November closing date, the website had received 3,888 visits with 1,200 document downloads, 62 registrations and 15 submissions.

The proposals submitted cover a wide variety of renewable-energy technologies including solar, wind, waste-to-energy and ocean. In reviewing the submissions, it is apparent that achieving a 20 percent renewable-energy target by 2020 will require a combination of several LSRE sources. Additionally, proceeding with any alternatives requires property and location options, and clearly defined Government approval processes.

As there is great global demand for alternative-energy providers, timely resolution of outstanding questions and issues need to be forthcoming in order to keep participants interested in pursuing Bermuda.

Central Power Station
Despite conservation, demand for electricity continues to increase. Bermuda's peak demand for electricity reached an all time high of 119.8 megawatts (MW) on 23 September, compared with 117.7 MW during summer 2007.

In order to continue to meet the peak demand for electricity, BELCO has applied to Government for approval to install 18 MW of gas turbine plant for emergency back-up and peak load operation. The new units will replace 10 MW of existing, less efficient gas turbine plant that has reached the end of its service life. The new units will be installed at exactly the same location as the units that are being replaced.

Replacement of the older gas turbines was the proposed second phase of development contained in BELCO's eight-phased, 20-year redevelopment and expansion planning application submitted to the Planning Department over a year ago. The first phase was to have been a reconfiguration of the site to accommodate an additional two new diesel engines by 2010. By postponing phase one and moving directly to phase two, we are able to buy time for Bermuda to scope out, agree and plan alternatives to further development at the BELCO site.

It is important to recognise that the window for moving ahead with other alternatives is crucially, time sensitive. Completion of the gas turbine plant by 2010 will provide sufficient energy supply peaking capacity through 2013. By 2014, Bermuda will need additional electricity generating capacity in place to maintain continuous, reliable electricity supply.

Energy Policy
Government's Green Paper on Energy is due to be released early in the New Year. Debate of the Green Paper, followed by development of a White Paper and subsequent legislation is more than likely a year or two away. As we await Bermuda's Energy Policy, we are encouraging Government to prioritise the establishment of policies, plans and processes that can expediently facilitate realisation of alternative-energy opportunities that exist for Bermuda now. These include clear processing procedures for planning and environmental approvals, decisions on the use of Government land, encouragement for infrastructure synergies in major developments, and standards and policies for interconnection to the electricity grid. To delay policy in these areas will result in lost opportunities, including ultimately forcing the need for BELCO to move forward with major construction in order to begin implementing the total redevelopment of the Central Power Plant site as per the 2007 planning application.

Looking Forward to 2009
Despite the projections for a difficult New Year, we are looking forward to a decisive and productive 2009. We believe Bermuda now has the options available to shape what will be our energy future, and our group of companies has the will and the dedicated people to move these opportunities forward. Working co-operatively with Government and the business community, we firmly believe that collectively, timely decisions can be made and we can find synergies and leverage our strengths and knowledge for the benefit of all Bermuda.

On behalf of the directors, management and staff of our group companies, we wish each and every one of you a happy, healthy and successful New Year.

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