BELCO AR 2004 by zhouwenjuan


									Empowering Bermuda’s Progress

                                                                                           2007                    2006             %

                                Earnings from Operations                         $    20,399,518        $    21,618,657          (5.64)

                                Basic and Fully Diluted Earnings per Share

                                     from Operations                             $          1.98        $          2.10          (5.71)

                                Cash Dividends                                   $     8,555,230        $     8,327,473          2.74

                                Stock Dividend                                                 –                  100%*              –

                                Cash Dividends per Share                         $          0.83        $          0.81*         2.50

                                Market Price per Share (as at 31 Dec.)           $         21.00        $         23.00          (8.70)

                                Book Value per Share (as at 31 Dec.)             $         28.64        $         27.48          4.22

                                Total Assets (as at 31 Dec.)                     $   339,657,633        $   326,506,574          4.03

                                Sales of Electricity                             $   194,614,918        $   184,013,971          5.76

                                Kilowatt Hours Generated                             718,670,344            708,936,661          1.37

                                Barrels of Fuel Used                                     999,903                991,849          0.81

                                Customs Duty on Barrels of Fuel                  $    15,098,535        $    14,976,920          0.81

                                Kilowatt Hours Sold                                  643,821,093            631,365,472          1.97

                                Peak Load (Kilowatts)                                    117,700                117,200          0.43

                                Load Factor                                              68.41%                 67.80%           0.90

                                Number of Metered Connections                             34,841                 34,043          2.34

                                Number of Gas Customers                                   15,722                 15,688          0.22

                                * On 31 August, 2006, BELCO Holdings Limited (the Company) issued a 100% stock dividend which
                                doubled the number of shares outstanding. As a result, cash dividends per share have been adjusted for
                                comparative purposes.

 2   To The Shareholders
 9   Year In Review
10   Empowering Bermuda’s Progress
21   Financial Information
22   Management’s Analysis
28   Report of Management
29   Auditors’ Report
30   Financial Statements
34   Notes To Financial Statements
42   Comparative Statistics
45   Corporate Information
BELCO Holdings Limited
is a publicly-traded
investment holding company.
Bermuda Electric Light Company Limited (BELCO)
was established in 1904 as Bermuda’s sole supplier of electricity.
BELCO operates generating plant and transmission and distribution
systems to service over 34,000 metered connections.

Bermuda Gas & Utility Company Limited                                     3

was established in 1936 as a distributor of propane gas and operates
a service and appliance centre. The Company was purchased by BELCO
in November 1994.

BTS Limited
was established in 1995 and is a subsidiary investment holding company.

BELCO Properties Limited
was established in 1996 and is a property rental and development
company established to manage those properties which are not used in
the production or distribution of electricity.
                                                                   TO MAXIMISE SHAREHOLDER VALUE
    BELCO HOLDINGS LIMITED’S MISSION                                         UTILITY-RELATED SERVICES,
                                                                   ENERGY BUSINESS AND EXPANDING

    To The Shareholders
    There has never been a more exciting, challenging and opportune
    time to be in the energy business. Like the rest of the world,
    Bermuda is grappling with the competitive challenges of needing
    to develop power generation to meet projected increased demand
    for electricity, against a backdrop of escalating fuel prices, climate
    change concerns, a desire for new technologies and an uncertain
    regulatory environment.

    Throughout 2007 our attention has been focused on the future. It has been a difficult year
    punctuated by starts and stops. After 24 months of attempting to engage the community
    in discussions about Bermuda’s future energy infrastructure, there remain no alternative
    sites for any form of future power generation.

    As recently as February 2008, Government reaffirmed that there are approximately
    15 major multi-million dollar development projects under consideration. Although no
    specific timeframes have been given as to when these developments will come to
    fruition, all will require a secure, reliable energy supply.

    The establishment of a new Ministry of Energy, while welcomed by us, also presents
    uncertainties as we await clarity as to its role and the policies that will influence our
    energy plans.

    We also hear the community’s call for alternatives to a traditional electricity generating
    plant, including renewable energy and distributed generation at locations beyond the
    current Central Plant site. Customers are also increasingly supporting greater energy
    efficiency and conservation as a means to reduce overall costs.

                                      Left to right:

                                      J. MICHAEL COLLIER

                                      A. L. VINCENT INGHAM
                                      President & Chief Executive Officer

                                      BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT

    Affected by these present uncertainties, BELCO Holdings Limited consolidated net earn-
    ings for 2007 were $20,399,518, down 5.64 percent from the $21,618,657 achieved
    in 2006. Overall electricity sales increased less than projected in 2007. This was a direct
    result of conservation brought about by higher fuel cost reflected in the fuel adjustment
    rate, as well as milder summer temperatures.

    A complete review of physical inventory of Bermuda Electric Light Company Limited’s
    (BELCO’s) warehousing during the year, as a part of a reconfiguration and consolidation of

    the facilities, resulted in a significant write-off of recorded stock items. The new ware-
    house configuration will provide for more efficient inventory management.

    Additionally, as no alternative site has been identified for future power plant facilities,
    plans to build a new consolidated plant and warehouse for Bermuda Gas & Utility
    Company Limited (Bermuda Gas) on property adjacent to BELCO was cancelled in order
    to incorporate that location into BELCO’s long-term Central Plant development. This result-
    ed in the payment of contract cancellation penalties, and the write-off of development
    costs incurred up to the cancellation.
    The market price for BELCO Holdings Limited shares fluctuated between $23.00 and                 Over the
    $20.00 to close the year at $21.00, a decrease of 8.70 percent. Earnings per share also          past decade,
    ended the year lower at $1.98 versus $2.10 in 2006. The annual dividend rate per share           on average,
    increased 5.0 percent. Book value per share also rose 4.22 percent from $27.48 to                the Company
    $28.64. We believe that a lack of liquidity on the local market has made our shares under-       has invested
    valued. This is a concern, and we will be reviewing options to stimulate greater interest in     $25 million
    BELCO Holdings Limited shares and opportunities to increase value to our shareholders.           annually
                                                                                                     in power
    The New Energy Equation           I For BELCO, the focus in 2007 was on energy planning.         generation,
    While extensive consultation led to discussions about Southside, Tynes Bay and WEDCO
    as possible distributed generation sites, there were no agreements within the timeframe
    required to make a decision about the next development of generating plant. Therefore,
    in November BELCO submitted an application to the Department of Planning for the
    complete expansion and rebuilding of the Pembroke power plant site through 2030. While
    another section of this report provides greater detail of our Energy Plan, it is important to
    note that the plan is flexible and can, and will, be revised every three to five years to take
    into account changes in demand, potential distributed generation and alternative technol-
    ogy options.
As the plan stands now, over the next 10 years BELCO will be required to invest approxi-
mately $497 million into energy infrastructure in order to expand supply and delivery
capabilities to reliably meet Bermuda’s increasing demand for electricity. To put this into
perspective, present net book value of BELCO’s utility plant and assets is $245 million.

In support of this necessary investment in Bermuda’s energy infrastructure, the Price
Control Commission has approved an overall increase in rates of 2.5 percent per year for
four years, beginning in 2008, and 3.0 percent for a fifth year. The average Consumer
Price Index (CPI) increase is 3.1 percent per year. We are pleased that we have been able
to keep the requested increases below CPI.

Historically, BELCO has taken sole responsibility for planning and investing in Bermuda’s
energy infrastructure. This has worked well. Over the past decade, on average, the
Company has invested $25 million annually in power generation, transmission and distri-
bution. This investment has come primarily from retained earnings. As a result, Bermuda
has a robust, reliable electricity system that compares favourably to systems in other
island communities, and to many in North America. However, the future is bigger, more
complicated and will be more expensive. Land limitations, the need to incorporate new
technologies and the extensive investment required to expand and diversify Bermuda’s
energy infrastructure present issues that will require input from Government and other
organisations outside BELCO.

We are very pleased that Government has established a Ministry of Energy. We look
forward to participating in the development of a Green Paper on Energy for Bermuda. In
the meantime, we are also doing what we can to assist Government in moving ahead with
policy and regulatory changes that will provide incentives for small-scale renewable
technologies and standards for greater energy efficiency.

We have been disappointed by the fact that Current to Current Corporation with which we
signed an agreement to purchase ocean current generated power has not yet provided a
delivery date. In the meantime, given no other commercially available large-scale renew-
al options open to us, we have turned our attention to the role that small-scale renewable
technologies can play as a contributor to Bermuda’s overall energy mix.

In October, we completed installation of a hybrid, small-scale renewable system at BELCO’s
Belmont Substation property. Referred to as the “Beta Site”, the installation is providing

                                                    BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT

    experience which we are using to develop our small-scale renewable strategy. We believe
    that small-scale renewable technology can, and should, be a sustainable component of
    Bermuda’s overall energy mix. Accordingly, we are developing policies and guidelines that
    will define criteria for interconnection with our system. BELCO’s interest is in ensuring that
    interconnection is consistent, sustainable, safe, secure and reliable.

    BELCO Holdings is 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. Toward this end, we continually reassess what the future may hold. This
    includes monitoring key factors that influence electricity demand projections and review-
    ing international research and development on renewable energy, new technologies and
    trends. We also study regulatory policies in other jurisdictions to see how regulators
    balance continued investment in traditional and non-traditional technologies, energy
    efficiency and expanding energy infrastructure.

    Although these are complicated times, the good news is that our Company remains well
    positioned to move positively and progressively in any environment. Financially solid, our
    strength is our people, specifically their knowledge, abilities, and their demonstrated
    agility to navigate changing circumstances. We thank the people of BELCO and Bermuda
    Gas for their perseverance and dedication.

    Leadership Change        I In closing, we acknowledge the many contributions of Garry A.
    Madeiros who retired on 31 December 2007, having been President & Chief Executive
    Officer of BELCO and BELCO Holdings Limited for 14 years, as well as having served 11
    years on the Board of Directors. Mr. A.L. Vincent Ingham, who served with Mr. Madeiros
    as Executive Vice President & Chief Operating Officer, succeeded him as President & Chief
    Executive Officer of BELCO on 1 July 2007, and BELCO Holdings Limited on 1 January
    2008. We thank them for their leadership in shaping our Company which remains
    committed to successfully Empowering Bermuda’s Progress.

    J. Michael Collier
     Net Earnings             (millions of dollars)                   Capitalisation    (millions of dollars)

     I NET EARNINGS FROM OPERATIONS                                   I SHAREHOLDERS’ EQUITY
     I CASH & STOCK DIVIDENDS                                         I LONG-TERM DEBT

24                                                              300

20                                                              250

16                                                              200

12                                                              150

 8                                                              100

 4                                                               50

 0                                                                0
     03                  04                05         06   07         03           04               05          06   07

     Investment in Property,                                          Kilowatt Hours Sold            (trend)
     Plant and Equipment                                              I COMMERCIAL
     (millions of dollars)                                            I RESIDENTIAL
                                                                      I OTHER
48                                                              360

40                                                              300

32                                                              240

24                                                              180

16                                                              120

 8                                                               60

 0                                                                0
     03                  04                05         06   07         03           04               05          06   07

                                                                           BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT
          Book Value vs Market Price       (dollars)                               2007 Employee Breakdown by Status
          I BOOK VALUE PER SHARE                                                   I BERMUDIANS
          I MARKET PRICE PER SHARE                                                 I GUEST WORKERS
                                                                                   I LONG-TERM RESIDENTS
     30                                                                      360

     28                                                                      300

     26                                                                      240

     24                                                                      180

     22                                                                      120

     20                                                                       60

     18                                                                        0
          03                  04     05        06                  07

          Growth in Fuel Costs                                                     Fuel Efficiency
          I COST OF FUEL                  BARRELS OF FUEL        I                 I KILOWATT HOURS PER BARREL OF FUEL
10        (millions of dollars)                (millions of barrels)

     90                                                                3.0   710

     75                                                                2.5   700

     60                                                                2.0   690

     45                                                                1.5   680

     30                                                                1.0   670

     25                                                                .5    660

      0                                                             0        650
          03                  04     05        06                  07              03          04           05           06   07

Consolidated financial results for BELCO Holdings Limited in 2007 were, $20,399,518, 5.64
percent below the $21,618,657 recorded in 2006. Earnings were affected by lower than pro-
jected electricity sales, a significant write-off of BELCO inventory and contract penalties paid
as a result of cancelling the planned development of a new Bermuda Gas warehouse.

BELCO ended the year earning $19,217,850, compared to $20,659,192 in 2006. While
the number of residential customers increased 2.53 percent from 30,917 to 31,699, the
average kilowatt hour (kWh) usage per customer decreased from 730 kWh to 726 kWh per
month. This decrease in consumption is attributed to conservation in response to the high fuel
adjustment rate, particularly in the second half of the year, as well as milder summer
temperatures that resulted in less air conditioning use.

A year-long review of BELCO’s physical inventory resulted in the write-off of $1.8 million in
inventory. The review was done in conjunction with the redesign of the warehouse layout
which will allow for inventory consolidation and implementation of new processing systems.
The Company also paid $684,000 to contractors in contract cancellation penalties and devel-
opment costs incurred to date to build a new Bermuda Gas warehouse so that the property
could be incorporated into plans for expansion of the Central Power Plant site.
The cost of fuel increased $5,708,544 in 2007 to $85,767,287 from $80,058,743 in 2006
with the average price 6.30 percent higher than the previous year. The cost of fuel reached
its highest level ever in July with BELCO paying $89.17 per barrel for Heavy Fuel Oil and
$109.85 for No.2 Diesel Oil. This resulted in the fuel adjustment rate reaching a new high of
11.50 cents per kWh, accounting for approximately 36 percent of the average residential
customer’s bill. Fortunately, as a result of improved utilisation of new plant, BELCO was able
to achieve greater fuel efficiency of 705 kWh per barrel of fuel, compared to 702 kWh in
2006, which softened the price impact. The peak load on our system remained essentially
unchanged at 117.7 megawatts, compared to 117.2 in 2006.

Managing fuel expenditure is vital to BELCO, as it is to our customers. In order to get the best
price per barrel of fuel, while also ensuring that the security of our fuel supply is protected,
BELCO invited seven companies to submit proposals to supply fuel. Four vendors, which
included ESSO, our sole supplier for the last 50 years, responded to the Request for Proposal.
As a result, the contract for Heavy Fuel Oil, which represents 82 percent of our consumption
was awarded to BP Products North America Inc. while ESSO Bermuda continues to supply the
No. 2 Diesel Oil. The two agreements were effective 1 November 2007.

Bermuda Gas ended the year with net earnings of $1,127,895, a significant 57.38 percent
improvement over 2006 results. This increase in earnings is largely attributed to increased gas
sales as well as better results from appliance sales due to a full first year at the centrally locat-
ed City of Hamilton premises.

                                                          BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT
                                                 PLANNING FOR THE FUTURE
                                       HAS BEEN OUR TRADITION
                                                          FOR OVER 100 YEARS

     Empowering Bermuda’s Progress
            The New Energy Equation
            Developing a sustainable energy platform requires a collective
            endeavour 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.
            BELCO, its shareholders, customers, employees and Govern-
            ment are interdependent components of Bermuda’s energy
            equation. Finding the best solutions requires changing mindsets
            and habits to facilitate collaborative consensus that will sustain
            our community and environment for the benefit of all.

            Integrated Energy Planning            I        However, we believe there are incremen-
            Internationally, concerns about global         tal steps that Bermuda can take to
            climate change, the cost and availability      integrate renewable energy and greater
            of fossil fuel and increased demand for        efficiency into our existing energy mix.
            electricity supply are driving a rush to
                                                           Preparing for the future requires looking
            invest in renewable power, alternative
                                                           globally, while planning locally. Being pre-
            fuels and energy efficient technologies.
                                                           pared to benefit from the breakthroughs
            Many of these technologies are still in the
                                                           that will occur requires a cooperative
            research and development phase, and
                                                           community effort. The timing and success-
            not yet commercially available.
                                                           ful delivery of new technologies will
                                                           influence our plans and drive our deci-
                                                           sions as we continue to meet Bermuda’s
                                                           energy demands, reliably and safely.

                                In the meantime, we are working on             I   BELCO’s decision to submit its
                                strategies to integrate renewable energy       application to the Planning Department
                                where we can, and working with Govern-         in November 2007 for the long-term
                                ment, business partners and the commu-         expansion and redevelopment of the
                                nity to encourage greater energy efficiency.   central site, came at the end of a long
                                                                               consultation period. Unfortunately, no
                                Demand for Power          I New construc-      alternatives were agreed. The application
                                tion, renovations, population growth
                                                                               submitted to the Planning Department
                                and increasing volumes of electronic                                                         13
                                                                               is based on a projection of 1.5 percent
                                and electrical equipment are the major
                                                                               growth in demand for electricity annually
                                contributors to increased demand for
                                                                               over the next 20 years, with the first
                                energy services. Achieving an integrated
                                                                               addition required by 2011.
                                energy mix requires a change in mindset
                                that moves consideration of energy             Failing any supply alternatives, there is a
                                infrastructure, both supply and delivery,      projected need to expand and redevelop
                                to the forefront of Bermuda’s planning         the Pembroke power plant in eight phases,
                                process. If we can achieve this, BELCO         adding 195 megawatts of traditional
                                and Bermuda will have options to consid-       diesel generation plant through 2030.
                                er that can provide alternatives to maxi-      Planning as far into the future as possible
                                mum development at BELCO’s Central             to determine the maximum potential of
                                Plant location. These alternatives include     Bermuda’s only power plant site is prudent.
                                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 technologies yet to come.

                                                                               BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT
                                   TO PROVIDE A SECURE, RELIABLE
                          SYSTEM FOR THE PEOPLE OF BERMUDA.

                          The long-term plan takes into account       I   Incorporating small-scale renewable
                          Bermuda’s environmental standards and       technologies into Bermuda’s overall
                          improvements to mitigate the effects on     energy mix can start to build a renewable
                          the neighbourhood adjacent to the plant.    portfolio for Bermuda, and begin working
                          Retirement of older engines, coupled with   toward creating a hedge against a volatile
                          superior design of new power plant          fuel market. While this is a component of
                          means improved handling of emissions,       the solution, it does not solve the overall
               Unless     noise and vibration.                        challenge. The cost of renewable energy

14     circumstances                                                  versus traditional fossil fuel generated
                              At the time of writing this report,
      change, BELCO                                                   power is less attractive and would be
                          demand projections anticipate the need
          will need to                                                prohibitive for some of our customers.
                          for 28 megawatts of new plant by 2011
       reconfigure its
                          in order to keep up with growth and         BELCO has established a hybrid small-
        Central Plant
                          replace older power plant that will need    scale renewable test site to evaluate the
                site to
                          to be retired. Unless circumstances         potential and the cost in the local market.
                          change, BELCO will need to reconfigure      We are using information gleaned from
       the new 2011
                          its Central Plant site to accommodate       this site to develop our small-scale
     power generating
                          the new 2011 power generating installa-     renewable energy strategy and intercon-
                          tions. The plan relies on what we know      nection policy. We are also providing
                          is available and reliable today. It does    Government with recommendations for
                          not, however, preclude incorporating        incentives and policies to encourage
                          alternative sites and new technologies      the use of renewable energy, particularly
                          as opportunities present.                   in new developments and major renova-
                                                                      tions, where costs can be more comfort-
                                                                      ably absorbed. Given our small, isolated
                                                                      Island electricity system, all contributions
                                                                      to energy are important to the overall
                                                                      stability and planning of the system.

                                                                       BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT
                                             WE ARE COMMITTED TO
                           INCORPORATING RENEWABLE SOURCES
                                    INTO BERMUDA’S ENERGY EQUATION.

                 I   A key objective of our policies         Delivering Power to Our
                 and recommendations is sustainability.      Customers      I BELCO has always
                 We believe that renewable installations     maintained a core infrastructure that
                 should be viewed as incremental com-        accommodates the growth of power
                 ponents of Bermuda’s overall energy         requirements throughout the Island,
                 supply capability. We are disappointed      regardless of whether it is an extension
                 that Current to Current Corporation, with   to a single family home or a major com-
                 which we signed an agreement to pur-        mercial development. Our Energy Plan,
                 chase power, has been unable to deploy      as it stands now, anticipates that BELCO
                 its proposed, large-scale, ocean current    will need to invest $497 million in energy
                 solution. However, we continue working      infrastructure and service capabilities
                 with a number of other renewable energy     over the next 10 years in order to expand
                 suppliers to better define opportunities    to keep up with growth, and maintain
                 to deploy both small- and medium-scale      system reliability. Of this, it is anticipated
                 renewable technologies that collectively,   that approximately $105 million will be
                 could make a meaningful difference in       allocated to energy delivery, our transmis-
                 our energy planning strategy.               sion and distribution network.

   shares are
        to my
Buying BELCO
  shares is an
investment in
myself and my

                               I   The City of Hamilton network is            options for power production, forward
                               under considerable pressure from contin-       planning and consideration of how
                               ued growth in demand for electricity           customers will have energy delivered to
                               driven by renovations and the addition         them, is equally essential to continued
                               of new, larger buildings. Approximately        reliability of supply.

                               62 percent of the Island’s electricity
                                                                                   The East and West Ends of the
                               demand is in the central parishes with
                                                                              Island will also require reinforcement with
                               30 percent in the City. The proposed
                                                                              additional transmission cable capacity by      17
                               development of a major hotel at the
                                                                              2010. Similar to the extensive “Hospital-
                               Par-la-ville car park site will displace an
                                                                              to-Belmont” cable laying project that
                               already fully loaded substation that needs
                                                                              took place in the summer of 2007, other
                               to be relocated. Additionally, new substa-
                                                                              areas also require cable replacement to
                               tions will be required in other parts of the
                                                                              strengthen the system to accept further
                               City, such as North Hamilton, as demand
                                                                              growth. Additionally, the numerous large
                               grows with redevelopment initiatives. The
                                                                              hotel developments that have been pro-
                               scarcity of, and premium on property in
                                                                              posed for the East and West Ends of the
                               the City of Hamilton creates challenges
                                                                              Island, the potential for distributed gener-
                               in acquiring suitable locations and rights-
                                                                              ation and any medium or large renewable
                               of-way for substations, service vaults and
                                                                              energy developments, will have significant
                               underground cable routes. Although the
                                                                              affect on how the transmission system
                               demand placed on the transmission and
                                                                              is to be expanded and upgraded.
                               distribution network does not generate
                               the same level of discussion as do

                                                                              BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT
                           SUPPORTING OUR COMMUNITY IS AN
                                     INVESTMENT IN BERMUDA’S FUTURE –

                  People – Empower Progress             I       I   We are proud that BELCO is approxi-
                  In as much as energy is required, so          mately 91 percent staffed by Bermudians
                  are the people who have the knowledge,        and spouses of Bermudians. In our
                  talent and ability to supply and deliver      specialised industry, recruiting and retain-
                  power. An aging workforce, declining          ing Bermudians requires considerable
                  global birth rates and a reduction in the     investment to develop and sharpen

We are also       number of Bermudians entering the utility     expertise in all areas of our business.

seeking           industry presents challenges. Worldwide       Building bench strength allows us to
Bermudians        competition for scarce human resources,       provide our more experienced people

working abroad    plus the declining value of the US dollar     with opportunities to grow into leadership

and have devel-   are making it difficult to attract skilled,   positions. Our initiatives include a com-

oped additional   qualified labour from our traditional         prehensive Apprenticeship Programme,

initiatives       overseas recruitment sources. As a result,    which requires a four-year commitment

to enhance        we have expanded recruitment efforts          to training and study, plus a further five

recruitment and   to include South Africa, India and            years of specific coaching and mentoring.

retention of      Zimbabwe. We are also seeking                 BELCO has 14 apprentices and five

Bermudians        Bermudians working abroad and have            candidates so far in 2008. We also have

at all levels.    developed additional initiatives to           an Engineer-in-Training programme
                  enhance recruitment and retention of          which has seen nine Bermudian engineers
                  Bermudians at all levels.                     over the past 12 years progress and
                                                                achieve professional engineering status.
                                                                Four engineers are currently enrolled in
                                                                the programme.

                                                                BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT


                   I   Several of these trainees have also       A key performance measurement for
                   benefitted from the BELCO Llewellyn           each team member includes ensuring an
                   Vorley Scholarship and Educational            annual minimum of training and develop-
                   Awards. Bermudian engineering students        ment of all of the people reporting to them.

                   are selected annually to receive scholar-
                                                                     Safety and environment are two
                   ship and educational funding based on
                                                                 particular areas of focus supported by
                   merit. We are pleased that in 2007 over
                                                                 specific initiatives and associated training.
                   $100,000 was awarded to eight students
                                                                 These include integrating international
20                 who we hope will put their education to
                                                                 best practice standards, ISO (the Interna-
                   work for Bermuda and BELCO.
                                                                 tional Organisation for Standardisation)
                   I   As a part of the restructuring of         14001 for environmental management,
                   BELCO in 2007, the Company refocused          and OHSAS (Occupational Health and
                   the attention of its former Senior Manage-    Safety Assessment Series) 18001, safety
                   ment Team on Company strategy, as an          management system. During the year,
                   Executive Group. This made way for a          BELCO people have been involved in
                   new Management Team to take responsi-         training and working with specialist con-
                   bility for the daily operations of the Com-   sultants to benchmark current practices
                   pany, and further develop their leadership    against these standards. Policies and pro-
                   abilities. As important as monitoring         cedures are now being revised to develop
                   profitability, operations and customer        comprehensive management systems
                   service, our Business Performance Index       that have clearly defined and measurable
                   measures employee development,                targets for performance and independent
                   involvement and recognition.                  third party assessment. Both initiatives
                                                                 are targeting compliance in 2009.

                                                                 BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT
                         EVERY DAY WE CHALLENGE OURSELVES
                                   MEET BERMUDA’S ENERGY NEEDS.

                I   Bermuda Gas is also dedicating          To better align our community activities
                significant resources to training and       with our corporate goals and objectives,
                development. Currently, four service        we recently revised our corporate giving
                technicians are training at Texas State     philosophy to target specific initiatives
                Technical College, and another will soon    that benefit the community with improved
                attend training at Mitchell Technical       energy alternatives, as well as greater
                Institute in South Dakota. Bermuda Gas      energy efficiency, energy related education
                has a 100 percent Bermudian workforce.      and the environment. While in 2008 we
                                                            will maintain commitments to our existing
                Aligning Corporate Giving           I       title sponsorships including the Visitor
                Developing a sustainable energy plan
                                                            Industry Partnership, the BELCO Cup and
                for Bermuda requires establishing and
                                                            Rubber Duck Derby that supports Agape
                maintaining community partnerships that
                                                            House for the terminally ill, we will
                enhance the options and opportunities
                                                            realign other activities to focus greater
                to arrive at the best overall solutions.
                                                            attention on energy and environmental
                This includes the sharing of information,
                                                            related issues.
                communication and participation.

Working at
BAMZ, the
get a better
of how
their actions
Financial Information


     Earnings Overview   E L E C T R I C I T Y O P E R AT I N G R E V E N U E

                         Gross electricity sales revenue increased $10,600,947 in 2007 to $194,614,918 up from the
                         $184,013,971 achieved in 2006. Of this increase, 51.33 percent or $5,441,124 was a direct result of
                         fuel adjustment revenue increasing to $55,193,552, from $49,752,428. The corresponding increase
                         in fuel costs is reflected in the Energy Supply group costs. Basic tariff rates were increased an overall
                         average of 1.5 percent effective 1 January 2007 providing additional revenue of $2,501,510. The
                         balance of the increase, $2,658,313, represents increased consumption resulting from an overall 1.97
                         percent growth in kWh sales.

                         The table below presents the specific sales levels and changes in the various rate classes.

                                                                                            2007                            2006
                                                                         KW H S A L E S   % CHANGE     KW H S A L E S    % CHANGE

                         Residential                                 275,677,086             1.65    271,214,974             0.85
                         Commercial                                  319,277,199             2.53    311,407,695             2.91
                         Other                                        48,866,808             0.25     48,742,803             8.01

                         Total                                       643,821,093             1.97    631,365,472             2.39

                         Residential sales continued to grow, increasing a further 1.65 percent or 4,462,112 kWh in 2007 fol-
24                       lowing a 0.85 percent increase in 2006. The increase in the current year was driven by new metered
                         customers. In 2007, BELCO added 782 new residential metered customers representing an increase in
                         residential metered customers of 2.53 percent. Total consumption from new metered customers in
                         2007 was 6,800,829 kWh. However this increase was offset by an overall decrease of 2,338,717 kWh
                         in general residential consumption. Lower residential consumption is attributed in part to milder tem-
                         peratures experienced in 2007, which reduced residential heating and air conditioning requirements.
                         There was also greater conservation by residential customers in response to higher electric bills stem-
                         ming from increased fuel adjustment rates. Fuel adjustment rates have been increasing steadily over
                         the last two to three years as fuel costs have risen as a result of increased world demand, insufficient
                         refinement facilities to meet increased world demand for refined fuel, as well as geo-political issues.
                         These forces have all contributed to this year’s fuel adjustment rate reaching an all time record rate of
                         11.50 cents per kWh in December 2007, up from 7.60 cents in December 2006.

                         Commercial and Other
                         Sales in the Commercial sector were up 2.53 percent or 7,869,504 kWh, compared to an increase of
                         2.91 percent in 2006. Notable customers in this group whose consumption rose include American
                         International Limited, stemming from its new premises, Waterfront Properties Limited and A.S.
                         Cooper & Sons Ltd. Increased demand by active commercial customers, along with sales to new
                         customers, offset lost commercial sales due to business closures and decreased operating activity at
                         locations such as the Wyndham Bermuda Resort & Spa.
           The 0.25 percent increase noted in “Other” customer sales is largely due to increased demand at both
           the Berkeley Institute Senior School and King Edward VII Memorial Hospital during the year.

           The Company’s peak demand for 2007 of 117.7 MW occurred on 21 August 2007 at 8:45 p.m. The
           daytime peak for the year was 117.4 MW, also recorded on 21 August 2007, at 4:45 p.m. This year’s
           peak is 0.43 percent higher than the 2006 peak of 117.2 MW. Maximum evening loads closely approx-
           imate maximum day loads indicating high levels of demand for energy are being maintained at
           relatively constant levels for longer periods. The Company’s load factor for the year of 68.41 percent
           (2006: 67.80 percent) continues to support this finding.

           Other Revenues
           Consolidated other income decreased $259,393 from $2,201,995 in 2006 to $1,942,602 in 2007.
           Meter and line connection revenues decreased $102,694 from $764,075 recognised in 2006 due to a
           decrease in service connections as compared to the level of activity seen in the prior year. Interest
           income also decreased $153,449, as average cash deposits for the current year were lower when com-
           pared to 2006 average cash deposit balances.

Expenses   E L E C T R I C I T Y O P E R AT I N G E X P E N S E S

           Changes in levels of Operating Expenditures are as follows:
                                                                                 2007                                 2006     25
                                                                                    %                                     %

           Energy Supply                                     $ 7,178,279          6.99      $14,839,743               16.90
           Energy Delivery                                            (31,248)   -0.36          (415,176)              -4.60
           Administration and General                               4,521,885    17.81          528,462                2.13
               (BELCO Holdings Limited)

           Depreciation                                              528,474      2.81          214,192                1.15
               (BELCO Holdings Limited)

           Energy Supply
           Fuel costs are the most significant of the Energy Supply expenses. Total fuel costs increased $5,708,544
           from $80,058,743 in 2006 to $85,767,287 in 2007. This increase is largely due to the increased cost
           of fuel. The average cost of a barrel of fuel increased $5.00 or 6.30 percent from $79.36 in 2006 to
           $84.36 in 2007, resulting in $4,999,515 in additional fuel costs. This was offset by increased engine
           production efficiency realised in 2007 enabling the Company to save approximately $405,450. The
           Group produced an average 705 kWh for each barrel of fuel used in 2007, up from the 702 kWh
           produced in 2006. This increase is attributed to a combination of day and evening loads remaining
           fairly constant enabling the Company to maximise efficient use of plant, as well as increased avail-
           ability of diesel plant which is more efficient than gas turbines. Overall generation increased from
           708,936,661 kWh in 2006 to 718,670,344 kWh in 2007, an increase of 9,733,683 kWh or 1.37
           percent. Our cost per barrel of fuel includes a Customs Duty charge of $15.10 per barrel.

                                                                                   BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT
     M A N A G E M E N T ’ S A N A LY S I S O F R E S U LT S A N D F I N A N C I A L C O N D I T I O N

                                                    Other Energy Supply costs increased by $1,469,734. Consulting costs were approximately $382,000
                                                    higher than in 2006. This is due primarily to expenditures incurred for plant expansion modelling, as
                                                    well as the review and negotiation of fuel contracts, as the Company went out to tender to try and
                                                    achieve more effective fuel pricing. As a result of this process, BP Products North America Inc. (BP)
                                                    was awarded the contract for heavy fuel oil, which represents 82 percent of our fuel consumption. The
                                                    Company looks forward to working with BP to minimise the impact of continually rising fuel prices.
                                                    In addition, costs were incurred on a vibration study, as the Company began investigating its options
                                                    to build plant on the Pembroke site. Engine lubricant oil prices increased significantly during 2007,
                                                    resulting in additional costs of $247,999. An Arc Flash study costing $83,379 was carried out
                                                    during the year, as the Company adopted compliance with National Fire Protection Agency standard
                                                    70E as part over its overall plan to enhance Company safety standards. Labour costs also increased in
                                                    2007 due to wage increases, manning levels, staff development and safety training.

                                                    Energy Delivery
                                                    Expenses in 2007 decreased $31,248 compared to 2006. In 2006, the Company incurred $336,565 in
                                                    costs to repair damaged overhead lines resulting from Hurricane Florence. This is the principle reason
                                                    for the decrease noted this year. Offsetting this decrease were payments made to EA Technologies
                                                    totalling approximately $164,000. EA Technologies was hired to review the Company’s entire trans-
                                                    mission system’s protection equipment to identify where enhancements could be made to ensure secure
                                                    customer service and supply. Outside contractor costs were also significantly higher in 2007 due pri-
26                                                  marily to excavation work carried out to repair cable faults, as well as to address tree trimming
                                                    requirements. The Company should see a reduction in future excavation costs as more of the older
                                                    cable is replaced in the coming years. The cable change out is required to ensure secure service, as well
                                                    as to enhance service capacity to meet increased future demand. The tree trimming effort was increased
                                                    significantly in 2007, after several years of tree growth following Hurricane Fabian in 2003 to ensure
                                                    overhead line faults are minimised.

                                                    Administration and General
                                                    Administration costs increased 17.81 percent or $4,521,885 from 2006. Approximately $1.8 million
                                                    of this increase is due to a write-down of BELCO’s inventory following a physical inventory count
                                                    undertaken during the year. This inventory review was conducted in conjunction with a revamp of the
                                                    warehouse layout to allow for greater consolidation of spare parts and to facilitate new procurement
                                                    processes. The physical inventory count revealed a need to write-off stock identified as having been
                                                    used without having been recorded as such, as well as a write-down of inventory assessed as either
                                                    damaged or obsolete. Plans to build a new consolidated plant and warehouse for Bermuda Gas on the
                                                    Wilkinson property had to be cancelled during the year to incorporate that location into BELCO’s
                                                    long-term Central Plant development plan, given limited options for building new plant to meet future
                                                    demand for energy. This resulted in approximately $684,000 in contract cancellation penalties and
                                                    development costs being expensed during the year. The Company also absorbed approximately
                                                    $198,000 in research costs associated with the establishment of a test site to assess small-scale renew-
                                                    able applications in the local market. The Company will continue to incur such costs in the future as
                                                    it is committed to the evaluation and implementation of alternatives to traditional fossil fuel genera-
                                                    tion given the ever-increasing cost of fossil fuel.
                    The Company’s bad debt provision was increased approximately $149,000 in light of an assessed
                    deterioration in BELCO aged customer receivables at year-end. While the Company believes these
                    monies will ultimately be collectible, the increase in fuel adjustment revenue has driven the level of
                    accounts receivable up proportionately and hence, the dollar value of longer-term receivables has
                    increased. Collection of outstanding customer receivable balances will be a central focus as BELCO
                    looks to clear its accounts leading up to the implementation of its new customer services and billing
                    system in 2008. Salaries and wages increased approximately $1,080,000 due to a significant number
                    of positions being filled during the year, promotions and wage increases in line with Bermuda’s CPI.
                    Fire alarm system maintenance support costs increased approximately $135,000 in 2007, following
                    renewal of the contract and an increase in maintenance coverage due to fire system enhancements.
                    Defined benefit pension costs in 2007 decreased $1,174,000 as compared to 2006 due to favourable
                    returns on pension plan assets during the year.

                    Given the capital intensive nature of the Company’s operations, depreciation is one of the largest sin-
                    gle operating costs, representing 10.96 percent of total operating expenditures this year. Depreciation
                    costs increased $528,474 largely due to full-year depreciation being taken on the Phoenix Switchboard,
                    which was capitalised in late 2006. A total of approximately $35,975,815 was added to the fixed asset
                    base in 2007 which is subject to depreciation. During the year, some $9,785,783 in assets reached the
                    end of their depreciation life and, therefore, their cost amortisation is no longer included in deprecia-     27

                    tion expense.

                    The Company’s four-year committed revolving $33 million credit facility with The Bank of N. T.
                    Butterfield & Son Limited that was used to finance the East Power Station expansion matured on 31
                    December 2007. During the year, the Company repaid the $7 million remaining balance under this
                    facility in accordance with the credit facility’s repayment terms. Interest costs of $458,905 in 2007
                    included $98,520 in interest rate cap amortisation and loan facility renewal fees of $24,914. Total
                    interest expense in 2006 was $801,632. The 2007 effective rate on outstanding debt of 6.10 percent
                    was higher than the effective rate of 5.54 percent on debt outstanding in 2006 and is reflective of
                    higher market rates.

Liquidity and       CONSTRUCTION

Capital Resources   The Company invested $26,018,729 in capital projects in 2007 compared to $31,959,950 in 2006.
                    Energy Supply capital expenditures in 2007 totalled $7,314,622. A further $2,997,108 was spent dur-
                    ing the current year on fire prevention and protection upgrades in accordance with recommendations
                    made by fire protection specialist Nadine International Consulting Engineers (Nadine) who were hired
                    in 2006 to conduct a comprehensive engineering review of the Company’s fire prevention and protec-
                    tion systems. The Company also spent $256,208 on phase two of its upgrade to the East Power Station
                    control room. This two-year project started in 2006, will result in the Company having a complete
                    back-up control facility that, in the event of lost functionality to its main control room, will enable the
                    Company to maintain control over the Island’s power grid. Final commissioning of this facility is
                    scheduled for 2008. The Company continued modification of its oily water treatment plant, which it

                                                                                     BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT
     M A N A G E M E N T ’ S A N A LY S I S O F R E S U LT S A N D F I N A N C I A L C O N D I T I O N

                                                    began in 2006, incurring additional costs totalling $851,159. The Company extended the scope of the
                                                    project design in order to obtain a fully re-engineered and robust oily water treatment plant. This work
                                                    is essential to ensure the consistent discharge of the Company’s environmental obligations under its
                                                    current operating licence obligations, as well as meet its operational benchmarks. A further $3,218,597
                                                    was incurred in connection with the Phoenix Switchboard switchgear built following the loss of its
                                                    AEI and GEC switchboards, stemming from the 14 July 2005 fire at the Company’s Serpentine Road
                                                    facilities. Phase one of this project was completed during the year, and the Company acquired addi-
                                                    tional switchgear as phase two planning which will see a need for additional switchboard functional-
                                                    ity when construction of the new power station commences in the near future. Consulting fees totalling
                                                    $675,828 were paid to consulting firms Mott MacDonald Pettit and J.W. Beck in connection with this
                                                    new power station development. Extensive site and planning design options have been developed to
                                                    ensure BELCO’s future generation obligations are met.

                                                   Capital expenditure incurred by Energy Delivery in 2007 totalled $16,974,866. The Company spent
                                                   $5,129,256 on the “Hospital-to-Belmont” transmission cable replacement project. Justification for this
                                                   project was twofold; to provide King Edward VII Memorial Hospital with a back-up power source,
                                                   and to replace a set of cable approximately 60 years old that extends from the Company’s Serpentine
                                                   Road location to the Belmont Substation. This project is expected to be completed by June 2008, and
                                                   when completed will increase the reliability of supply to the Island’s western parishes, add extra capac-
                                                   ity for future load growth and provide the necessary back-up to the Hospital. Following recommen-
28                                                 dations made by the Company’s insurance provider, the Company spent $831,395 to acquire a stock
                                                   of transformers and spares deemed necessary to mitigate the risk of long-term service outage in the
                                                   event of a catastrophic failure to any one of these key components in the Company’s power system. A
                                                   total of $750,385 was spent undergrounding existing overhead service along Court Street in anticipa-
                                                   tion of future development in this area of the City of Hamilton. Joint planning with other utilities
                                                   enabled the Company to mitigate trench costs and limit disruption to the public in carrying out this
                                                   work. The undergrounding of overhead service will not only improve aesthetics in the area, but also
                                                   allow the Company to increase the service capacity, which will enhance the reliability and security of
                                                   service to area residents and businesses. The Company acquired a switchgear board for $462,587
                                                   during the year to replace the existing switchgear board at its Lighthouse Substation. The Company
                                                   intends to install the new board and decommission the existing board in 2008. The Company is
                                                   constantly looking for opportunities to improve security of supply while minimising the cost to achieve
                                                   this result. As already noted, this is often achieved through working closely with Bermuda’s other
                                                   major utilities in planning work and agreeing on shared costs. The Company, working closely with
                                                   Bermuda Telephone Company Limited shared trenching costs associated with work carried out from
                                                   Devil’s Hole to Sommersall Road in 2007, enabling the Company to lay 900 feet of cable required for
                                                   East End power injection while holding project cost to $735,382. Coordination and planning with
                                                   others controls costs and minimises the inconvenience to the public associated with road excavation.
                                                   Customer initiated project work carried out in 2007 as a result of new development requirements, and
                                                   the Company’s continued meter change out effort totalled $4,341,169.
The Company spent $1,602,665 during the year towards the replacement of its existing customer
information service system which is budgeted to cost $3.2 million. Lack of a vendor-supported-hard-
ware platform and integration issues with other corporate IT systems were principle drivers behind the
replacement decision. The Company has purchased the new customer information service system from
Cayenta Canada Corporation. The Company anticipates that when the system goes live in 2008 it will
be a more robust system with greater functionality, enabling it to provide enhanced levels of customer


BELCO Holdings’ earnings per share from operations decreased 5.71 percent in 2007 to $1.98 from
$2.10 in 2006. This is due primarily to decreased BELCO net earnings, stemming from the adjustment
to inventory of $1.8 million as well as expenditure totalling $684,000 related to the building of a new
consolidated plant and warehouse for Bermuda Gas that was cancelled in order to accommodate long-
term BELCO Central Plant development plans. Return on equity decreased from 7.84 percent at the
end of 2006 to 7.06 percent at the end of 2007 as a direct result of these lower earnings.

The cash dividend rate of $0.85 represents a 4.00 percent return based on the year-end stock price of
$21.00. BELCO Holdings increased its cash dividend rate by 5.00 percent during the year to ensure
returns on investment were comparable to similar risk-related investments. Shareholders at 31
December 2006 who held their shareholdings through to 31 December 2007 have, however, seen an
effective decrease in returns on their shareholdings of 5.09 percent due to the $2.00 decrease in the
year-end market price of their shareholdings from last year’s market price of $23.00.


The Company repaid the remaining $7 million of its outstanding debt from its four-year revolving
credit facility with The Bank of N. T. Butterfield & Son Limited issued in connection with its plant
expansion. This facility matured on 31 December, 2007. The Company has a $25 million short-term
facility with The Bank of N. T. Butterfield & Son Limited to finance short-term needs. At the end of
the year, the Company had drawn down $16.5 million to finance heavy fuel oil purchased under its
new fuel contract with BP, as well as to address working capital requirements.


Bermuda Gas net earnings for the year increased 57.38 percent or $411,223 to $1,127,895 when
compared to 2006 net earnings of $716,672. Sales increases in two of the three major business units
resulted in this positive growth after an abnormal year in 2006, which included warehouse and rental
showroom relocation costs. Gas sales revenues increased 6.55 percent in 2007, following growth in
2006 of 10.23 percent. Growth is due to increases in both sales volumes and unit prices. The
Company’s move to its new location in the Boyle Building during 2006 has led to an increase in
appliance sales of 13.68 percent. The Boyle Building location has proven to be an ideal location for
customers to enjoy the well organised and attractive showroom. The Company’s service and parts sales
fell 3.33 percent due to a decrease in chargeable technician hours and the resulting decrease in parts
sales for parts used for service work. This is due to a lack of local resources. The Company has taken
steps to rectify this and has four individuals presently overseas in formal training programmes.

                                                               BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT

                  The consolidated financial statements of BELCO Holdings Limited presented in this report have been
                  prepared by Company personnel in accordance with Generally Accepted Accounting Principles. The
                  integrity and objectivity of the data in these financial statements are the responsibility of management.
                  In preparing these statements, management makes informed judgments and estimates of the expected
                  effects of events and transactions that are currently being reported.

                  The Company’s system of internal accounting control is designed to provide reasonable assurance that
                  assets are safeguarded and transactions are executed according to management’s authorisation. Internal
                  accounting controls also provide assurance that transactions are recorded properly, so that financial
                  statements can be prepared according to Generally Accepted Accounting Principles. In addition, the
                  Company’s accounting controls provide reasonable assurance that errors or irregularities which could
                  be material to the financial statements are prevented or detected by employees within a timely period
                  as they perform their assigned functions. The Company’s accounting controls are continually reviewed
                  for effectiveness by management.

                  The accompanying consolidated financial statements have been audited by PricewaterhouseCoopers,
                  independent auditors. Management has made available to PricewaterhouseCoopers all the Company’s
                  financial records and related data, as well as representations management believe to be valid and

30                appropriate. The accompanying report of the independent auditors is based on their audit conducted
                  in accordance with generally accepted auditing standards, including a review of selected internal
                  accounting controls and tests of accounting procedures and records.

                  A.L. Vincent Ingham                                 Andrew D. Parsons
                  President & Chief Executive Officer                 Treasurer

Independent Auditors’ Report
to the Shareholders

We have audited the consolidated balance sheet and the consolidated statement of long-term debt of
BELCO Holdings Limited as at 31 December 2007 and the consolidated statements of earnings,
retained earnings and cash flows for the year then ended. These financial statements are the responsi-
bility of the Company’s management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in Bermuda and
Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance
whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.

In our opinion, these financial statements present fairly, in all material respects, the consolidated finan-
cial position of the Company as at 31 December 2007 and the results of its consolidated operations
and cash flows for the year then ended in accordance with accounting principles generally accepted in
Bermuda and Canada.

Dorchester House                                 PricewaterhouseCoopers
Hamilton, Bermuda                                Chartered Accountants
27 March 2008

                                                                    BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT
     AS AT 31 DECEMBER 2007

                                                                                                      NOTES                        2007                2006

     Assets                   Fixed Assets
                              Utility Plant, at Cost                                                                    $   561,897,923     $   536,007,256
                              Other Physical Property, at Cost                                                               15,230,941          14,941,395
                                                                                                               4             577,128,864         550,948,651
                              Accumulated Depreciation                                                         4            (321,387,571)       (301,901,525)
                                                                                                                            255,741,293         249,047,126

                              Current Assets
                              Cash and Short-Term Investments                                                                15,720,438          17,193,751
                              Accounts Receivable, less Provision                                                            15,439,888          15,010,591
                              Materials and Supplies                                                                         21,944,505          22,548,813
                              Fuel and Lubricants                                                                            24,347,855          17,376,023
                              Prepaid Expenses                                                                                5,745,648           4,612,264
                                                                                                                             83,198,334          76,741,442

                              Goodwill                                                                                          718,006             718,006
                                                                                                                        $   339,657,633     $   326,506,574

     Capitalisation           Capitalisation
32   and Liabilities          Capital Stock                                                                    5        $    10,318,184     $    10,292,607
                              Share Premium                                                                    5             26,160,593          25,681,971
                              Contributed Surplus                                                                            22,549,745          22,549,745
                              Retained Earnings                                                                             236,451,181         224,274,361
                                                                                                                            295,479,703         282,798,684
                              Long-Term Debt                                                               6(a)                        –           7,000,000
                              Less: Current Portion                                                                                    –           7,000,000
                                                                                                                                       –                   –
                                                                                                                            295,479,703         282,798,684

                              Current Liabilities
                              Customer Deposits                                                                                 742,607             689,333
                              Accounts Payable                                                                                8,445,005          17,469,156
                              Accrued Liabilities                                                                            17,090,318          16,949,401
                              Demand Notes Payable, Banks                                                  6(b)              16,500,000                   –
                              Current Portion of Long-Term Debt                                                                       –           7,000,000
                                                                                                                             42,777,930          42,107,890

                              Other Liabilities
                              Specific Provisions                                                              7               1,400,000           1,600,000
                                                                                                                        $   339,657,633     $   326,506,574

                              The accompanying notes are an integral part of these Consolidated Financial Statements.

                                                                                                     2007                    2006

Operating Revenues
Sales of Electric Energy                                                                  $   194,614,918         $   184,013,971
Less: Discounts                                                                                 6,094,416               5,989,910
                                                                                              188,520,502             178,024,061
Gas Operations (Net of Cost of Goods Sold)                                                      6,927,724               6,302,543
Property Operations                                                                               101,758                 103,265
Other Income                                                                                    1,942,602               2,201,995
                                                                                              197,492,586             186,631,864

Operating Expenses
Energy Supply                                                                                 109,812,244             102,633,965
Energy Delivery                                                                                 8,572,146               8,603,394
Administration and General                                                                     29,918,734              25,396,849
Gas Operations                                                                                  4,577,275               4,696,673
Property Operations                                                                                68,565                  42,999
Depreciation                                                                                   19,324,562              18,796,088
Taxes and Rent                                                                                  4,375,346               3,986,400
                                                                                              176,648,872             164,156,368
Operating Income                                                                               20,843,714              22,475,496     33

Interest Expense
Interest on Debt                                                                                  458,905                 801,632
Other                                                                                              78,034                 104,394
                                                                                                  536,939                 906,026

Earnings before Undernoted Items                                                               20,306,775              21,569,470

Foreign Exchange Gain                                                                              86,380                   49,187
Gain in Fair Value of Held for Trading Investments                                                  6,363                        –
Net Earnings for the Year                                                                 $    20,399,518         $    21,618,657
Basic and Fully Diluted Earnings Per Share:                                               $           1.98        $           2.10

The accompanying notes are an integral part of these Consolidated Financial Statements.   BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT

                                                                                                    NOTES                       2007               2006

                            Balance – Beginning of Year                                                               $   224,274,361    $   216,123,904
                            Adjustment to Opening Retained Earnings                                          2                332,532                  –
                                                                                                                          224,606,893        216,123,904
                            Net Earnings for the Year                                                                      20,399,518         21,618,657
                            Stock Dividends Paid                                                                                    –         (5,140,727)
                            Cash Dividends Paid                                                                            (8,555,230)        (8,327,473)
                            Balance – End of Year                                                                     $   236,451,181    $   224,274,361


                                                                                                    NOTES                       2007               2006

                            Cash Flows From Operating Activities
                            Earnings from Operations                                                                  $    20,399,518    $    21,618,657
                            Adjustments to Cash Basis:
                            Depreciation                                                                                   19,324,562         18,796,088
34                          Inventory Write-off                                                                             1,841,740                  –
                            Specific Provisions                                                                              (200,000)                 –
                            Changes In Non-Cash Working Capital Balances:
                            Accounts Receivable                                                                              (429,297)        11,276,209
                            Inventory                                                                                      (8,209,264)        (4,662,685)
                            Accounts Payable, Accrued Liabilities
                              and Customer Deposits                                                                        (5,139,492)         3,992,579
                            Prepaid Expenses                                                                               (1,133,384)          (339,759)
                                                                                                                           26,454,383         50,681,089

                            Cash Flows From Investing Activities
                            Fixed Assets                                                                                  (29,709,197)       (26,251,108)

                            Cash Flows From Financing Activities
                            Cash Proceeds from Issuance of Capital Stock    5                                                 504,199            639,463
                            Cash Proceeds from Demand Notes Payable, Banks                                                 17,500,000                  –
                            Repayment of Demand Notes Payable, Banks                                                       (1,000,000)                 –
                            Repayment of Long-Term Debt                  6(a)                                              (7,000,000)       (12,000,000)
                            Cash Dividends Paid                                                                            (8,555,230)        (8,327,473)
                                                                                                                            1,448,969        (19,688,010)

                            Increase (Decrease) in Cash and Short-Term Investments                                         (1,805,845)         4,741,971
                            Cash and Short-Term Investments Beginning of Year                                              17,193,751         12,451,780
                            Adjustment to Opening Cash and
                               Short-Term Investments                           2                                            332,532                   –
                            Cash and Short-Term Investments End of Year                                               $    15,720,438    $    17,193,751

                            The accompanying notes are an integral part of these Consolidated Financial Statements.

                                                                        NOTES                        2007                    2006

Unsecured Debt
Bank of N.T. Butterfield & Son Ltd.                                          6(a)         $              –        $     7,000,000
Less: Current Portion                                                                                    –              7,000,000
                                                                                          $              –        $              –


The accompanying notes are an integral part of these Consolidated Financial Statements.   BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT


                            These consolidated financial statements have been prepared in accordance with accounting principles
                            generally accepted in Bermuda and Canada and are presented in Bermuda Dollars which are on par
                            with US Dollars. The preparation of financial statements in conformity with Generally Accepted
                            Accounting Principles (GAAP) requires management to make estimates and assumptions that affect the
                            reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
                            of the financial statements and the revenue and expenses during the reporting period. Actual results
                            could differ from those estimates. The significant accounting policies are as follows:

                            a    Principles of Consolidation

                            These consolidated financial statements include the accounts of the Company and its four wholly-
                            owned subsidiaries, Bermuda Electric Light Company Limited (BELCO), Bermuda Gas & Utility
                            Company Limited (Bermuda Gas), BTS Limited and BELCO Properties Limited.

                            b    Sale of Electric Energy

                            The sales of electricity are based on consumption recorded by meter readings taken monthly during
                            the year. As in previous years, no account has been taken of unread consumption at the end of the
                            financial year.

                            c    Fixed Assets

                            Fixed assets are recorded at cost. Interest cost on funds borrowed for the construction of certain long-
                            term assets has been capitalised. The capitalised interest is recorded as part of the asset to which it
                            relates and is to be depreciated over the estimated useful life of the asset.

                            Depreciation of generating plant, transmission and distribution equipment less estimated salvage
                            value is calculated on a straight-line basis over periods ranging from 15 to 24 years. Depreciation of
                            general plant and other physical plant is calculated on a straight-line basis over periods ranging from
                            three to 24 years. The calculation of depreciation is based on the cost of each group of assets from
                            the actual date that they are brought into service.

                            d    Materials and Supplies

                            Materials and supplies are recorded at average cost less provisions for obsolescence.

                            e    Fuel and Lubricants

                            Fuel and lubricants are recorded at cost on a first-in, first-out basis.
f   Foreign Currency Translation

Monetary assets and liabilities have been translated into Bermuda Dollars at rates of exchange which
approximate those rates prevailing at the Company’s year-end. Transactions in foreign currencies
during the year have been recorded at actual rates of exchange incurred. Gains or losses arising on
foreign currency translations are included in earnings for the year.

g   Basic and Fully Diluted Earnings Per Share

Basic and fully diluted earnings per share is calculated by dividing net earnings by the weighted
average number of common shares outstanding during the year.

h   Pensions and Employee Future Benefits

BELCO maintains a trusted, non-contributory, defined benefit pension plan covering all full-time
employees prior to 1 January 2006. The cost of pension benefits earned by employees under the defined
benefit pension plan is determined using the projected benefits method pro-rated on service. For the
purpose of calculating the expected return on plan assets, those assets are valued at fair value. Annual
changes in net assets or obligations arising from changes in assumptions, plan amendments and tran-
sitional amounts are amortised over the expected average remaining service life of the employees
covered by the plan. The excess of net experience gains or losses over 10 percent of the greater of
the benefit obligation and the fair value of plan assets is amortised over the average remaining service      37

period of active employees. BELCO also maintains a defined contribution plan for all employees hired
after 31 December 2005. Contributions to the defined contribution plan are expensed as incurred.

Bermuda Gas maintains a defined contribution plan. Contributions to the defined contribution plan
are expensed as incurred.

BELCO and Bermuda Gas provide post-retirement medical benefits for substantially all retired
employees. The Company uses the accrual basis of accounting for these benefits whereby an accrual is
made for the present value of the future benefits to be provided in the reporting period in which the
employee has provided the related service. Annual changes in the post-retirement medical benefits
obligation arising from actuarial gains and losses, changes in assumptions and plan amendments are
amortised on a straight-line basis over the expected average remaining service life to full eligibility age
of employees covered by the plan.

i   Goodwill and Other Intangible Assets

The Company does not record amortisation on goodwill. Goodwill is tested for impairment on an
annual basis, or more frequently if impairment indicators arise. As at 31 December 2007, there was no
impairment of the Company’s investment.

                                                                 BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT
     N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

     NOTE 2                                       ADOPTION OF NEW ACCOUNTING STANDARDS

                                                  In April 2005, the Canadian Institute of Chartered Accountant’s (CICA) Accounting Standards Board
                                                  issued three new accounting standards dealing with the recognition, measurement and disclosure of
                                                  financial instruments, hedges and comprehensive income together with many consequential amend-
                                                  ments throughout the CICA Handbook. The revised sections are effective for financial years beginning
                                                  1 January 2007. Of the three new accounting standards, only Financial Instruments – Recognition and
                                                  Measurement, Section 3855 is currently revelant to the Company.

                                                  (i)      Financial Instruments – Recognition and Measurement, Section 3855

                                                  This standard prescribes when a financial asset, financial liability, or non-financial derivative is to be
                                                  recognised on the balance sheet and whether fair value or cost-based methods are used to measure the
                                                  recorded amounts. It also specifies how financial instruments gains and losses are to be presented.

                                                  Effective 1 January 2007, the Company’s investments in marketable securities have been classified as
                                                  held for trading and will be recorded at fair value on the balance sheet. Changes in fair value of these
                                                  instruments will be reflected as a gain or loss in earnings.

                                                  As at 1 January 2007 the effect on the Company’s balance sheet as a result of adopting the prescribed
                                                  standard is a $332,532 increase in opening retained earnings and a $332,532 increase in Cash and
                                                  Short-Term Investments. As prescribed by GAAP, prior periods will not be restated.

     NOTE 3                                       FINANCIAL STATEMENT EFFECTS OF RATE REGULATION

                                                  The following describes the circumstance in which rate regulation affects the Company’s accounting
                                                  for a transaction or event. Regulatory assets represent future revenue associated with certain costs
                                                  expected to be recovered from customers in future periods through the rate regulation process.
                                                  Regulatory liabilities represent future reductions or limitations of increases in revenues associated with
                                                  amounts expected to be refunded to customers through the rate regulation process.

                                                  The Bermuda Electric Light Company Limited is rate regulated by the Bermuda Government Price
                                                  Control Commission. The Company is required to submit all requests for changes in basic customer
                                                  tariff rates to the Price Control Commission who have the ultimate authority in approving or rejecting
                                                  the Company’s submissions. The Company is also required to submit on a monthly basis, requests for
                                                  approval of the fuel adjustment rate. The fuel adjustment rate charge enables the Company to recover
                                                  the cost of fuel exceeding $30.00 per barrel from the consumer. The Price Control Commission has
                                                  ultimate authority in approving or rejecting the Company’s monthly fuel adjustment rate request. As
                                                  at December 31, 2007 and 2006 the regulatory assets and liabilities are immaterial.

                                                                                                              2007                2006
                                                ORIGINAL COST          A C C U M U L AT E D                NET BOOK            NET BOOK
                                                                       D E P R E C I AT I O N                    VALUE            VALUE

         Generation Plant                    $ 266,072,388        $ (172,657,940)                    $   93,414,448      $ 104,057,941
         Transmission Equipment                  62,034,130            (25,280,739)                      36,753,391          30,799,979
         Distribution Equipment                 157,314,898            (73,914,197)                      83,400,701          73,143,770
         General Plant                           76,476,507            (45,221,227)                      31,255,280          30,240,545
         Other Physical Property                 15,230,941             (4,313,468)                      10,917,473          10,804,891

                                             $ 577,128,864        $ (321,387,571)                    $ 255,741,293       $ 249,047,126

         Total capital work in progress of $10,235,765 (2006: $19,476,283) is embedded in fixed assets noted
         above. Capital work in progress is not subject to depreciation.


                                                                                                         2007                     2006

         Capital stock comprises:
         Authorised – 20,000,000 shares of a par value of $1 each                               $   20,000,000           $   20,000,000   39
         (2006: 20,000,000 par value $1)

         Issued and fully paid – 10,318,184 shares of a par value of
         $1 each (2006: 10,292,607 par value $1)                                                $   10,318,184           $   10,292,607

         During the year, 25,577 shares (2006: 23,227) were purchased by employees under an Employee
         Purchase Scheme at an average price per share of $19.71 (2006: $25.43), giving rise to an increase in
         share premium of $478,622 (2006: $616,236).


         a    The Company’s four-year committed revolving credit facility of $33,000,000 with The Bank of N.T.
         Butterfield & Son Limited matured on 31 December 2007. The $7,000,000 drawn-down balance at the end
         of 2006 was repaid in full during 2007 in accordance with the repayment terms of the credit facility. Interest
         on this facility was charged at Libor plus 0.5 percent for the relevant interest period during the year.

         b    As at 31 December 2007, the Company had a $25,000,000 loan facility with The Bank of N.T.
         Butterfield & Son Limited which extended to 28 February 2008. This facility allows for draw downs in both
         Bermuda dollars and US dollars. As at 31 December 2007, the Company drew down US$4,000,000 bearing
         interest at 4.93875 percent and BD$12,500,000 bearing interest at 5.50 percent. Subsequent to the Company’s
         year-end, this facility was renewed and extends to February 28, 2009.

                                                                                        BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT
     N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

     NOTE 7                                       SPECIFIC PROVISIONS

                                                                                                                         2007                      2006

                                                  Specific provisions comprise:
                                                  Provision for uninsured risks:
                                                       Transmission Equipment                                      $   200,000               $   200,000
                                                       Generation Equipment                                            600,000                   600,000
                                                       Consequential Loss                                              600,000                   600,000
                                                       Injuries and Damages                                                   –                  200,000

                                                                                                                   $ 1,400,000               $ 1,600,000

                                                  The Company provides for uninsured risks as disclosed above. The provisions have been made based
                                                   on management’s best estimate of the level of losses. Due to uncertainties inherent in the estimation
                                                   process used to determine the provisions, it is reasonably possible that actual events may cause the
                                                   recorded provisions to be excessive or inadequate.

     NOTE 8                                       PENSIONS AND POST-RETIREMENT MEDICAL BENEFITS

                                                  BELCO maintains a trusted, non-contributory, defined benefit pension plan covering all full-time
                                                   employees hired before 1 January 2006. For all employees hired subsequent to 31 December 2005,
                                                   BELCO maintains a defined contribution plan. Contributions to the defined contribution plan amount-
                                                   ing to $102,726 (2006: $24,107) were made during the year.

                                                   Bermuda Gas maintains a defined contribution plan. Contributions amounting to $113,210 (2006:
                                                   $99,253) were made during the year.

                                                  BELCO and Bermuda Gas provide post-retirement medical benefits for substantially all retired employees.
The following table provides summaries of the pension and post-retirement medical benefits plans’
estimated financial positions as of 31 December 2007 and 2006.

                                                     PENSION BENEFIT PLAN                      MEDICAL BENEFIT PLAN
                                                   2007                  2006                2007                2006

Accrued benefit obligation
Balance – Beginning of year              $ 93,961,000        $ 97,776,294         $ 11,430,361            $ 10,299,435
Current service cost                           3,149,000           2,829,000              274,044              257,156
Interest cost                                  5,719,580           5,671,480              964,221              869,192
Plan amendments and
  net actuarial (gain) loss                    2,365,720          (8,373,874)             877,723              830,804
Benefits paid                                 (3,713,500)         (3,941,900)             (871,198)           (826,226)

Balance – End of year                        101,481,800          93,961,000         12,675,151             11,430,361

Plan assets
Fair value – Beginning of year               104,798,800          95,050,874                     –                    –
Actual return on plan assets                   8,170,970          10,797,826                     –                    –
Employer contributions                         3,061,930           2,892,000                     –                    –
Benefits paid                                 (3,713,500)         (3,941,900)                    –                    –
Expenses                                               –                      –                  –                    –

Fair value – End of year                     112,318,200         104,798,800                     –                    –

Funded status – plan surplus (deficit)        10,836,400          10,837,800        (12,675,151)           (11,430,361)
Unamortised net actuarial loss                 4,442,210           3,716,440             5,325,774           4,684,201
Unamortised transitional asset               (10,631,500)        (11,705,300)                    –                    –

Accrued benefit asset (liability)        $     4,647,110     $     2,848,940      $ (7,349,377)           $ (6,746,160)

The significant actuarial assumptions in measuring the Company’s accrued benefit obligations are as
follows (weighted-average assumptions as of 31 December 2007):

                                                            PENSION BENEFIT PLAN              MEDICAL BENEFIT PLAN
                                                            2007 %            2006 %        2007 %            2006 %

Discount rate                                                    6.00             6.00          8.00              8.00
Expected rate of return on plan assets                           6.25             6.25                –               –
Rate of compensation increase                                    4.75             4.75                –               –

                                                                        BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT
     N O T E S T O C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S

                                                  For measurement purposes, the annual rate of increase in the per capita cost of covered health care
                                                  benefits was assumed to be 11.0 percent for 2008 and thereafter reducing 1.0 percent per year until
                                                  reaching 5.0 percent after six years. In 2006, it was assumed to be 11.0 percent for 2007 and, there-
                                                  after, reducing 1.0 percent per year until reaching 5.0 percent.

                                                  The discount rate used by the Company’s actuary in determining the accrued pension and medical
                                                  benefit obligations is, in the opinion of management, consistent with market interest rates at the meas-
                                                  urement date of high-quality debt instruments with cash flows that match the timing and amount of
                                                  the expected benefit payments. The discount rate used in determining the accrued medical benefit
                                                  obligation is considered a sustainable internal rate of return.

                                                  The Company’s net benefit plan expense is as follows:

                                                                                                      PENSION BENEFIT PLAN             MEDICAL BENEFIT PLAN
                                                                                                    2007             2006            2007              2006

                                                  Current service cost                       $ 3,149,000      $ 2,829,000     $    274,044     $    257,156
                                                  Interest cost                                5,719,580         5,671,480         964,221          869,192
                                                  Actual return on plan assets                 (8,170,970)     (10,797,826)              –                    –
                                                  Actual (gain) loss on accrued
                                                       benefit obligation                      2,365,720        (8,373,874)              –                    –

                                                  Pension (gain) loss before adjustment
42                                                     to recognise the long-term
                                                       nature of the plans                     3,063,330       (10,671,220)       1,238,265        1,126,348

                                                  Difference between expected
                                                       and actual return on assets             1,641,410         5,220,986               –                    –

                                                  Difference between actuarial
                                                       gain (loss) recognised and
                                                       actual actuarial gain on
                                                       benefit obligation                      (2,365,720)       8,969,444               –                    –

                                                  Amortisation of transitional asset           (1,073,800)      (1,073,800)              –                    –

                                                  Adjustments to recognise the
                                                       long-term nature of the plans           (1,798,110)      13,116,630               –                    –

                                                                                             $ 1,265,220      $ 2,445,410     $ 1,238,265      $ 1,126,348

          Management has identified its reportable segments based on different products and services that the
          operating companies offer.

                                               2007               2006      2007         2006            2007                2006
                                                       ELECTRIC                ALL OTHER (A)                     T O TA L

          Total Revenues from
              External Customers         $196,024         $185,758       $ 19,192    $ 17,895         $215,216       $203,653
              Intersegment Revenues              31                 39       308           275            339                 314
              Interest Revenue                  162                315       452           412            614                 727
              Interest Expense                  528                852         9               54         537                 906

          Depreciation of
              Capital Assets                  18,576         18,141          749           655          19,325              18,796

          Segment Profit                      19,217         20,659         1,182          960          20,399              21,619

          Segment Assets                     312,457        300,075        27,201       26,432         339,658         326,507

          Expenditures for
              Segment Capital Assets          25,158         30,749          861         1,211          26,019              31,960

          a     Revenues from segments below the quantitative thresholds are attributable to two operating
          segments of BELCO Holdings Limited. Those segments include a propane supply company and a prop-
          erty holding and development company. The accounting policies of the segments are the same as those
          described in Note 1, Significant Accounting Policies. Reconciliation of segment revenues to total
          Company revenues is noted below.

                                                                                               2007                          2006

          Total Revenues for Reportable Segments                                    $    215,216                 $     203,653
          Cost of Goods Sold and Discounts                                                (17,723)                      (17,021)

          Total Company Revenues                                                    $    197,493                 $     186,632


          During the year, the Company issued a letter of intent to acquire property for $13.3 million. This
          acquisition will be financed through a combination of Company internally generated cash as well as
          bank borrowing.

          The estimated fair values of cash and short-term investments, long-term debt, accounts receivable,
          accounts payable, accrued liabilities and customer deposits approximate their carrying values.

                                                                                BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT

                                                                                                 2007                 2006             2005

     BELCO Holdings     Net Earnings (BD$) (3)                                            20,399,518           21,618,657         28,539,158
     Limited            Earnings per Share of Common Stock (BD$) (1) (4)                          1.98                    2.10          1.99
                        Fully Diluted (BD$) (4)                                                   1.98                    2.10          1.99
                        Dividends Paid per Share (BD$)                                            0.83                    1.22          1.54

                        Shareholders’ Equity (BD$)                                       295,479,703          282,798,684        268,868,037

                        Secured Debt (BD$)                                                           –                      –              –

                        Bank Loans and Notes (BD$)                                        16,500,000             7,000,000        19,000,000

     Bermuda Electric   Total Utility Plant (BD$)                                        561,897,923          536,007,256        504,750,278
     Light Company

     Limited            Maximum Demand (Kilowatts)                                            117,700              117,200          113,800

                        Kilowatt Hours Generated (Thousands)                                  718,670              708,937          694,081

                        Annual System Load Factor                                             68.41%               67.80%            68.52%

                        Electricity Sales (Thousands of kWh)
                        Residential                                                           275,677              271,215          268,919
                        Commercial                                                            319,277              311,408          302,608
                        Other                                                                  48,867               48,742           45,127
                        Total                                                                 643,821              631,365          616,654

                        Gross Revenue from Electricity Sales (BD$)
                        Residential                                                       62,050,283            59,533,194        57,653,222
                        Commercial                                                        67,082,927            64,616,922        62,313,214
                        Other                                                             10,320,847            10,152,318         9,438,419
                        Fuel Adjustment                                                   55,193,552            49,752,428        36,171,695
                        Total                                                            194,647,609          184,054,862        165,576,550

                        Net Price per Kilowatt Hour (Cents) (2)
                        Residential                                                              30.43                29.10            26.47
                        Commercial                                                               28.41                27.51            25.43

     NOTE: 1            Figures have been adjusted for stock split and stock dividend.
     NOTE: 2            Assuming average discount deducted and including proportionate share of Fuel Adjustment.
     NOTE: 3            Net earnings for 2005 include insurance settlement net proceeds of $8,118,040.
     NOTE: 4            The 2005 earnings per share including insurance settlement net proceeds of $8,118,040 is $2.78.
      2004          2003          2002          2001          2000               1999               1998

 18,482,511    17,268,247    22,510,495    20,937,724    20,469,065        15,759,552         17,644,809
       1.81          1.70          2.22          2.07          2.03               1.57               1.76
       1.81          1.70          2.22          2.07          2.03               1.57               1.76
       1.54          1.54          1.54          1.54          1.43               1.40               1.30

247,688,525   236,457,764   226,688,499   209,934,206   195,881,280       187,089,780        177,410,149

          –             –             –             –             –                  –                  –

 31,500,000    13,000,000    14,000,000    24,000,000    24,000,000        28,000,000         15,000,000

481,209,583   442,466,198   413,715,238   401,940,100   390,992,431       370,057,086        331,553,885

   108,200       114,600       108,000       106,200       103,000            102,200              98,600

   667,196       664,356       643,905       615,037       603,313            584,789            563,346

    68.48%        65.68%        66.47%        64.42%        65.59%            65.32%              63.39%

   257,903       251,396       241,509       237,590       226,742            218,645            214,370
   293,863       295,386       290,542       276,044       267,871            264,058            254,440
     43,232       43,250        42,675         40,286        40,722            39,767              39,998
   594,998       590,032       574,726       553,920       535,335            522,470            508,808

 54,080,515    52,742,764    50,706,892    49,891,060    47,629,813        45,810,400         44,815,768
 59,838,817    59,993,648    58,107,613    55,941,143    54,270,282        54,051,988         51,807,251
  8,956,520     9,536,736     8,840,745     8,320,345     8,283,491         8,113,724          8,269,343
 26,007,761    21,911,509    15,502,738    18,166,658    17,100,141         7,214,644          7,725,896
148,883,613   144,184,657   133,157,988   132,319,206   127,283,727       115,190,756        112,618,258

      24.48         23.90         22.79         23.39         23.28              21.46              21.47
      23.77         23.14         21.70         22.57         22.45              20.99              20.91

                                                                 BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT
Corporate Information


     was established in 1995 and is a publicly-traded    was established in 1996 and is a property rental and
     investment holding company.                         development company established to manage those
                                                         properties which are not used in the production or
                                                         distribution of electricity.
     27 Serpentine Road, Pembroke HM 07, Bermuda
                                                         MAILING ADDRESS
                                                         P.O. Box HM 1026, Hamilton HM DX, Bermuda
     P.O. Box HM 1026, Hamilton HM DX, Bermuda
                                                         Tel: 441-295-5111 Fax: 441-292-8975
     Tel: 441-295-5111 Fax: 441-292-8975

     Left to right:
     A.L. Vincent Ingham,
     Reginald S. Minors,
     J. Michael Collier,
     Richard Spurling,
     A. Stanley Oliver,
     Dr. Wilbert N.E. Warner,
     L.A. Joaquin,
     James B. Butterfield,
     W. Edward Williams,
     Gavin R. Arton,
     A. David Dodwell,
48   Peter C. Durhager,
     Kathryn R. Siggins,
     Garry A. Madeiros


     Chairman of the Board
     I I I Director since 1989
     61, Retired, President & Chief Executive Officer,
     The Bank of N.T. Butterfield & Son Ltd.

     Deputy Chairman
     I I I Director since 1995
     63, President & Chief Executive Officer,
     Tools & Equipment Unlimited Ltd.

     I I I Director since 1999
     59, President & Chief Executive Officer
BTS LIMITED                                                COMMITTEES OF THE BOARD                                            C O R P O R AT E O F F I C E R S
was established in 1995 and is a subsidiary investment     I   Executive Committee
                                                           I   Finance & Human Resources & Compensation Committee             A.L. VINCENT INGHAM, J.P., P.Eng.
holding company.                                                                                                              President & Chief Executive Officer
                                                               Safety & Environment Committee
MAILING ADDRESS                                            I   Pension Advisory Committee
                                                                                                                              GARRY A. MADEIROS, J.P., F.C.A.
                                                               Scholarship Committee
P.O. Box HM 1026, Hamilton HM DX, Bermuda                                                                                     President & Chief Executive Officer (Retired 31 December 2007)
                                                               Nominating Committee
Tel: 441-295-5111 Fax: 441-292-8975                        I   Audit Committee                                                ANDREW D. PARSONS, M.B.A., C.A.
                                                           At 31 December 2007, the Directors of the Company held
                                                                                                                              Senior Vice President, Finance, BELCO
                                                           17,987 shares; the Officers of the Company held 42,509
                                                           shares. Companies that held greater than 5% of the shares          KEITH B. SPURLING, C.A.
                                                           are Bermuda Life Insurance Company Limited with 561,046,           Secretary
                                                           Murdoch & Company with 1,104,951 and Wilson &                      Vice President, Corporate Services, BELCO
                                                           Company with 1,781,686 shares.

GAVIN R. ARTON, M.B.A.                                     L.A. JOAQUIN, J.P., F.C.A.                                         RICHARD SPURLING
I I I Director since 2000                                  I Director since 2005                                              I I I Director since 1993
57, Senior Vice President, Global Director                 52, Retired, Managing Partner, Ernst & Young Bermuda               61, Retired, Senior Partner, Appleby
of Corporate Social Responsibility, XL Capital Ltd.
                                                           GARRY A. MADEIROS, J.P., F.C.A.                                    DR. WILBERT N.E. WARNER, F.R.C.P.(C), D.A.C.P
JAMES B. BUTTERFIELD                                       I I I Director since 1997 (Retired 31 December 2007)               I Director since 1999
I I I Director since 1993                                  58, Retired, President & Chief Executive Officer,                  53, Specialist Consultant, Internal Medicine
57, Managing Director, Butterfield & Vallis                BELCO Holdings Limited
                                                                                                                              W. EDWARD WILLIAMS, B.A.
A. DAVID DODWELL, J.P.                                     STANLEY A. OLIVER, BSc.CE, MPA, P.Eng                              I I Director since 1993
I I Director since 1988                                    I I Director since 2004                                            59, Property Manager,
59, President, The Reefs                                   64, Retired, Head of Civil Service                                 Coldwell Banker (Bermuda Realty)

PETER C. DURHAGER                                          KATHRYN R. SIGGINS, F.C.A.
I Director since 2003                                      I Director since 2004
37, Senior Vice President & Chief Administrative Officer   55, Vice President, Northstar Group Holdings, Ltd.
of RenaissanceRe Holdings Ltd.

                                                                                                                       BELCO HOLDINGS LIMITED 2007 ANNUAL REPORT

     B E R M U D A E L E C T R I C L I G H T C O M PA N Y L I M I T E D   C O R P O R AT E O F F I C E R
     ( B E L C O ) was established in 1904 as Bermuda’s
                                                                          KEITH B. SPURLING, C.A.
     sole supplier of electricity. BELCO operates generating              Secretary
     plant and transmission and distribution systems to                   Vice President, Corporate Services, BELCO
     service over 34,000 metered connections.

     27 Serpentine Road, Pembroke HM 07, Bermuda

     P.O. Box HM 1026, Hamilton HM DX, Bermuda

     Tel: 441-295-5111 Fax: 441-292-8975

     Left to right:
     A.L. Vincent Ingham,
     William C. DeSilva Jr.,
     Linda C. Smith
     Leonard J. Malloy,
     Robert B. Steynor,
     Andrew D. Parsons
     (At BELCO’s
     BETA site.)


                                                                          A.L. VINCENT INGHAM, J.P., P.Eng.           WILLIAM C. DESILVA JR., C.M.A., F.C.M.A.
                                                                          President & Chief Executive Officer         Senior Vice President, Administration

                                                                                                                      LEONARD J. MALLOY, M.Sc., M.A.,
                                                                                                                      IMechE., F.I.E.E.
                                                                                                                      Senior Vice President, Operations

                                                                                                                      ANDREW D. PARSONS, M.B.A., C.A.
                                                                                                                      Senior Vice President, Finance

                                                                                                                      LINDA C. SMITH
                                                                                                                      Senior Vice President, Corporate Relations

                                                                                                                      ROBERT B. STEYNOR, P.Eng.
                                                                                                                      Senior Vice President, Engineering
Left to right:
Lloyd W. Telford,
Gregory K. Jacobs,
C. Ross Smith,
Ernest S. Marshall,
Marcy A. King,
Leslie Lowe

                         Chairman, Retired, President & Chief
                         Executive Officer,
                         Bank of N.T. Butterfield & Son Ltd.

                         REGINALD S. MINORS, A.M.I.M.I.
                         Deputy Chairman, President & Chief
                         Executive Officer
                         Tools & Equipment Unlimited Ltd.

                         A.L. VINCENT INGHAM, J.P., P.Eng.
                         President & Chief Executive Officer

                         GARRY A. MADEIROS, J.P., F.C.A.
                         President & Chief Executive Officer (Retired
     Bank of Bermuda Limited
     Hamilton, Bermuda

     The Bank of N.T. Butterfield & Son Ltd.
     Hamilton, Bermuda

     Hamilton, Bermuda

     Conyers Dill & Pearman
     Hamilton, Bermuda


     B E R M U D A E L E C T R I C L I G H T C O M PA N Y L I M I T E D

     A D VA N TA G E LT D .

     S T E P H E N V. R AY N O R


                         TEL: 441-295-5111   FA X : 4 4 1 - 2 9 2 - 8 9 7 5   W W W. B E L C O H O L D I N G S . B M

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