EXHIBIT 10(c)
PEOPLES ENERGY CORPORATION
SHORT-TERM INCENTIVE COMPENSATION PLAN
ADMINISTRATIVE GUIDELINES
FISCAL 2005
OCTOBER 2004
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SHORT-TERM INCENTIVE COMPENSATION PLAN
ADMINISTRATIVE GUIDELINES
FISCAL 2005
This document sets forth the Administrative Guidelines for fiscal 2005
established by the Compensation Committee under the Peoples Energy Corporation
Short-Term Incentive Compensation Plan ("Plan").
Participants All full-time salaried employees of Peoples
Energy Corporation or its subsidiaries who
occupy a position in an officer salary grade
prior to April 1, 2005.
Award Opportunities The positions of participants are grouped by
incentive award categories, I through III.
The following schedule shows, for each
incentive award category, the maximum award
opportunity and the target award opportunity
for fiscal 2005, each expressed as a
percentage of a participant's annual base
salary. Where a participant has substantial
operating responsibility for a diversified
business, the Chief Executive Officer may
assign, to business unit measures for the
participant, a maximum award opportunity that
is different from the maximum award
opportunity shown in the following schedule.
Where a participant's maximum award
opportunity is established by separate
agreement with the participant, the maximum
award opportunity for purposes of these
guidelines shall be that established by such
agreement.
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<Table>
<Caption>
MAXIMUM AWARD TARGET AWARD
OPPORTUNITY OPPORTUNITY
AWARD (AS % OF ANNUAL (AS % OF ANNUAL
CATEGORY POSITIONS BASE SALARY) BASE SALARY)
- -------- ---------------------------------------------- --------------- ---------------
I Chairman, President and CEO 150% 75%
II Exec. VP, Operations and President, PERC 100% 50%
Senior VP and CFO
President, PGL and NSG
Senior VP, Business Services
President, PEPCO
III Assistant General Counsel and Secretary 75% 37.5%
VP and Treasurer
VP and Controller
VP, Risk Management
VP, Administration
VP, Corporate Communications
VP, Human Resources
VP, Information Technology Services
VP, Gas Supply & Engineering
VP, Gas Operations
VP, Power Generation, PERC
VP, Midstream Services, PERC
VP, Peoples Energy Services
VP, Exploration, PEPCO
VP, Engineering & Operations, PEPCO
VP, Land, PEPCO
VP, Business Development, PEPCO
</Table>
Where an employee becomes eligible to
participate in the Plan subsequent to the
establishment of these Guidelines but prior
to April 1 of fiscal 2005, the Chief
Executive Officer shall notify the Committee
of such employee's participation in the Plan
and such employee's assignment to an award
category consistent with the foregoing
schedule, provided that an assignment to any
category other than Category III shall be
made by the Committee.
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Performance/ Each participant's award opportunity will be
Award segmented into several components, each tied
Components to no more than four financial performance
measures and one operational measure
for Gas Distribution and Peoples
Energy Production participants. For
Senior Management (the Chairman,
President and CEO in Category I) the
entire award opportunity will be
tied to the corporate financial
performance measures as indicated in
the following table.
<Table>
<Caption>
Weighting of Corporate Financial Performance
Measures
For Senior Management
--------------------------------------------
Operating
Income from
Energy
EPS ROE Businesses
---- ---- -----------
50.0% 25.0% 25.0%
</Table>
The other participants will have up to 50% of
their award opportunity tied to the EPS
corporate performance measure. The remaining
percentage of their award opportunity will be
tied to other corporate or business unit
financial or operational measures.
One component's performance will not directly
affect the portion of the award opportunity
earnable from another component.
Award Payment Incentive awards will be paid under the Plan
Trigger for fiscal 2005 only if Peoples Energy's net
income for the year equals or exceeds the
dividend and Peoples Energy does not omit or
reduce its common stock dividend during the
year.
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Individual If a participant's overall performance is
Performance deemed unsatisfactory to some degree, a lower
Requirement incentive award or no incentive award will be
paid.
Performance The Corporate Financial Measures, Business
Measures Unit Financial Measures and Business Unit
Operation Measures are defined in detail in
Appendix A.
The financial measures will be based on the
performance that occurs within fiscal 2005
and payout percentages will be prorated
between levels. Performance under the
measures will be determined in the manner
described in Appendix A. For all applicable
measures, any effect related to the outcome
of the Reconciliation Proceeding or a change
in Aquila's status (including downgrade or
purchase of contract) will not be included in
the results for the performance measure.
The Chief Executive Officer will be
responsible for the designation and
evaluation of business unit measures.
Notice to At the beginning of fiscal 2005 or as soon as
Participants is practicable thereafter, each participant
will be notified of his or her participation
and receive a copy of these Administrative
Guidelines, and a statement showing the
participant's maximum award opportunity, the
participant's target award opportunity, the
performance measures that will be utilized to
determine the participant's award for fiscal
2005, and the weighting of the performance
measures within the award opportunities.
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Final Award The incentive award for a participant is
computed as the sum of the awards earned
based on corporate and/or business unit
performance measures. The final award will be
based on this computed award, adjusted up or
down to reflect the participant's individual
performance, such adjustment to be made at
the sole discretion of the Compensation
Committee for all participants other than the
Chief Executive Officer. The final award for
the Chief Executive Officer may be reduced
from the computed award to reflect
performance, such adjustment to be made at
the sole discretion of the Compensation
Committee subject to ratification by a
majority of the non-employee and independent
directors of the Board (as more fully
described in the Plan). The final award for
the Chief Executive Officer may not be
increased from the computed award by a
majority of all members of the Board who are
not officers or employees of the Company. The
final award for the Chief Executive Officer
may not be increased from the computed award.
It is intended that the final award for the
CEO under these guidelines constitute
"performance-based compensation" for purposes
of Section 162(m) of the Internal Revenue
Code. Accordingly, these Administrative
Guidelines shall be interpreted and
administered in accordance with such
intention.
Form and Timing Payments of awards will be made in cash as
Payments soon as practicable following the end of
fiscal 2005.
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Appendix A
CORPORATE AND BUSINESS UNIT PERFORMANCE MEASURES
PEC - ONGOING OPERATING (NON-GAAP) - EARNINGS PER SHARE
Peoples Energy attainment of targeted, diluted Non-GAAP EPS for fiscal
2005. Represents diluted EPS before restructuring related pension costs.
<Table>
<Caption>
LEVEL EPS PAYOUT % OF TARGET
- ----- ----- ------------------
1 $____ 200%
2 $____ 150%
3 $____ 100%
4 $____ 75%
5 $____ 50%
</Table>
PEC - RETURN ON EQUITY
Consolidated return on 13-month average common equity using PEC fiscal
2005 consolidated ongoing operating (non-GAAP) net income before restructuring
related pension costs. The balance of Other Comprehensive Income (OCI) - net of
tax is excluded from common equity for this calculation.
<Table>
<Caption>
LEVEL PEC ROE PAYOUT % OF TARGET
- ----- ------- ------------------
1 ____% 200%
2 ____% 150%
3 ____% 100%
4 ____% 75%
5 ____% 50%
</Table>
CORPORATE COST CENTER RESPONSIBILITY COSTS
Includes all costs under the control of corporate cost centers. This
includes costs rebilled to other companies and amounts capitalized. This measure
does not include restructuring related pension costs. Costs in millions of
dollars.
<Table>
<Caption>
LEVEL CORP. COSTS PAYOUT % OF TARGET
- ----- ----------- ------------------
1 $____ 200%
2 $____ 150%
3 $____ 100%
4 $____ 75%
5 $____ 50%
</Table>
OPERATING INCOME - DIVERSIFIED ENERGY BUSINESSES
Operating income from PEC's diversified business segments: power
generation, midstream services, retail energy services, oil and gas, and other.
It does not include corporate segment operating costs or corporate financing
costs. Operating income in millions of dollars.
<Table>
<Caption>
LEVEL OPERATING INCOME PAYOUT % OF TARGET
- ----- ---------------- ------------------
1 $____ 200%
2 $____ 150%
3 $____ 100%
4 $____ 75%
5 $____ 50%
</Table>
2
GAS DISTRIBUTION - NORMALIZED OPERATING INCOME
Award is based on pre-tax operating income from PGL and NSG. This
operating income will include HUB operating income and be adjusted for weather
variations. Operating income in millions of dollars.
<Table>
<Caption>
LEVEL OPERATING INCOME PAYOUT % OF TARGET
- ----- ---------------- ------------------
1 $____ 200%
2 $____ 150%
3 $____ 100%
4 $____ 75%
5 $____ 50%
</Table>
GAS DISTRIBUTION - RESPONSIBILITY COSTS
Includes all costs under the control of Gas Distribution cost centers.
This excludes environmental costs recovered through Rider 11 and the provision
for bad debt. Costs in millions of dollars.
<Table>
<Caption>
LEVEL GAS DIST. COSTS PAYOUT % OF TARGET
- ----- --------------- ------------------
1 $____ 200%
2 $____ 150%
3 $____ 100%
4 $____ 75%
5 $____ 50%
</Table>
3
GAS DISTRIBUTION OPERATING MEASURE
Reduction in the number of calls offered to the PGL and NSG call
centers
<Table>
<Caption>
LEVEL CALLS OFFERED PAYOUT % OF TARGET
- ----- ------------- ------------------
1 ____ 200%
2 ____ 150%
3 ____ 100%
4 ____ 75%
5 ____ 50%
</Table>
Increase in combined revenue for PGL and NSG generated through services
billed via Cfirst, revenue collected from jobbing contracts and revenue
collected from the leasing of construction heaters.
<Table>
<Caption>
NON-TRADITIONAL
LEVEL REVENUE PAYOUT % OF TARGET
- ----- --------------- ------------------
1 $____ 200%
2 $____ 150%
3 $____ 100%
4 $____ 75%
5 $____ 50%
</Table>
4
OIL AND GAS - RETURN ON CAPITAL EMPLOYED
Return on total capital investments each quarter, annualized, then
averaged at the end of the year. The return will be calculated using the Oil &
Gas segment's operating income (any other income would not be included) and the
total capital investment, net of depreciation, from the consolidated balance
sheet as disclosed in the 10-Q and 10-K. The calculation would include
investments in equity investments.
<Table>
<Caption>
LEVEL OIL AND GAS - ROCI PAYOUT % OF TARGET
- ----- ------------------ ------------------
1 ____% 200%
2 ____% 150%
3 ____% 100%
4 ____% 75%
5 ____% 50%
</Table>
OIL & GAS - OPERATING INCOME
Operating income from the existing base assets, the capital program and the
EnerVest Partnership. Operating income in millions of dollars.
<Table>
<Caption>
OIL AND GAS
LEVEL OPERATING INCOME PAYOUT % OF TARGET
- ----- ---------------- ------------------
1 $____ 200%
2 $____ 150%
3 $____ 100%
4 $____ 75%
5 $____ 50%
</Table>
5
OIL AND GAS - DAILY AVERAGE PRODUCTION
Annual average daily oil & gas production as measured on a MMCF per day
gas equivalent basis for the fiscal year from the existing assets and capital
program. Conversions will be based on 6 MCF of gas per BBL of oil.
<Table>
<Caption>
OIL & GAS
LEVEL PRODUCTION PAYOUT % OF TARGET
- ----- ---------- ------------------
1 ____ 200%
2 ____ 150%
3 ____ 100%
4 ____ 75%
5 ____ 50%
</Table>
POWER GENERATION - OPERATING INCOME
Operating income from continuing operations. The sale of the western sites are
not included in this measure. Operating income in millions of dollars.
<Table>
<Caption>
POWER GENERATION
LEVEL OPERATING INCOME PAYOUT % OF TARGET
- ----- ---------------- ------------------
1 $____ 200%
2 $____ 150%
3 $____ 100%
4 $____ 75%
5 $____ 50%
</Table>
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POWER GENERATION - SALE OF WESTERN SITES
Gain on the sale of the western sites in millions of dollars.
<Table>
<Caption>
POWER GENERATION
LEVEL SALE OF WESTERN SITES PAYOUT % OF TARGET
- ----- --------------------- ------------------
1 $____ 200%
2 $____ 150%
3 $____ 100%
4 $____ 75%
5 $____ 50%
</Table>
MIDSTREAM SERVICES - OPERATING INCOME
Operating income, excluding the PGL Hub. Operating income in millions of
dollars.
<Table>
<Caption>
MIDSTREAM SERVICES
LEVEL OPERATING INCOME PAYOUT % OF TARGET
- ----- ---------------- ------------------
1 $____ 200%
2 $____ 150%
3 $____ 100%
4 $____ 75%
5 $____ 50%
</Table>
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RETAIL ENERGY - OPERATING INCOME
Operating income in millions of dollars.
<Table>
<Caption>
RETAIL ENERGY
LEVEL OPERATING INCOME PAYOUT % OF TARGET
- ----- ---------------- ------------------
1 $____ 200%
2 $____ 150%
3 $____ 100%
4 $____ 75%
5 $____ 50%
</Table>
MIDWEST DIVERSIFIED ENERGY OPERATING INCOME
Operating income from Retail, Power, Midstream and Other
segments excluding Hub but including the gain from the sale of the western
sites. Operating income in millions of dollars.
<Table>
<Caption>
MIDWEST DIVERSIFIED
ENERGY OPERATING
LEVEL INCOME PAYOUT % OF TARGET
- ----- ------------------- ------------------
1 $____ 200%
2 $____ 150%
3 $____ 100%
4 $____ 75%
5 $____ 50%
</Table>
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