PEOPLES GAS LIGHT & COKE CO
FORM OF ANNUAL INCENTIVE COMPENSATION OPPORTUNITY LETTER
<DOCUMENT>
<TYPE>EX-10.(C)
<SEQUENCE>8
<FILENAME>c89822exv10wxcy.txt
<DESCRIPTION>FORM OF ANNUAL INCENTIVE COMPENSATION OPPORTUNITY LETTER
<TEXT>
<PAGE>

                                                                   EXHIBIT 10(c)






                           PEOPLES ENERGY CORPORATION

                     SHORT-TERM INCENTIVE COMPENSATION PLAN

                            ADMINISTRATIVE GUIDELINES

                                   FISCAL 2005






                                                                    OCTOBER 2004



                                       1
<PAGE>


                     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.



                                       2
<PAGE>


<Table>
<Caption>
                                                                                MAXIMUM AWARD            TARGET AWARD
                                                                                 OPPORTUNITY             OPPORTUNITY
 AWARD                                                                         (AS % OF ANNUAL          (AS % OF ANNUAL
CATEGORY                          POSITIONS                                      BASE SALARY)             BASE SALARY)
--------        ----------------------------------------------                 ---------------          ---------------
<S>             <C>                                                            <C>                      <C>
   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.



                                       3
<PAGE>


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
                                        ----            ----        -----------
<S>                                                     <C>         <C>
                                        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.



                                       4
<PAGE>


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.



                                       5
<PAGE>


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.



                                       6
<PAGE>


                                                                      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
-----                     -----                     ------------------
<S>                       <C>                       <C>
  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
-----                     -------                    ------------------
<S>                       <C>                        <C>
  1                        ____%                           200%
  2                        ____%                           150%
  3                        ____%                           100%
  4                        ____%                            75%
  5                        ____%                            50%
</Table>



<PAGE>


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
-----                     -----------               ------------------
<S>                       <C>                       <C>
  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
-----                ----------------                ------------------
<S>                  <C>                             <C>
  1                        $____                            200%
  2                        $____                            150%
  3                        $____                            100%
  4                        $____                             75%
  5                        $____                             50%
</Table>



                                       2
<PAGE>


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
-----                   ----------------             ------------------
<S>                     <C>                          <C>
  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
-----                 ---------------                ------------------
<S>                   <C>                            <C>
  1                        $____                            200%
  2                        $____                            150%
  3                        $____                            100%
  4                        $____                             75%
  5                        $____                             50%
</Table>



                                       3
<PAGE>


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
-----                  -------------                ------------------
<S>                    <C>                          <C>
  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
-----                 ---------------               ------------------
<S>                   <C>                           <C>
  1                        $____                           200%
  2                        $____                           150%
  3                        $____                           100%
  4                        $____                            75%
  5                        $____                            50%
</Table>



                                       4
<PAGE>


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
-----               ------------------              ------------------
<S>                 <C>                             <C>
  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
-----               ----------------                ------------------
<S>                 <C>                             <C>
  1                       $____                           200%
  2                       $____                           150%
  3                       $____                           100%
  4                       $____                            75%
  5                       $____                            50%
</Table>



                                       5
<PAGE>


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
-----                  ----------                 ------------------
<S>                    <C>                        <C>
  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
-----                 ----------------             ------------------
<S>                   <C>                          <C>
  1                        $____                           200%
  2                        $____                           150%
  3                        $____                           100%
  4                        $____                            75%
  5                        $____                            50%
</Table>



                                       6
<PAGE>


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
-----             ---------------------             ------------------
<S>               <C>                               <C>
  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
-----                ----------------             ------------------
<S>                  <C>                          <C>
  1                        $____                         200%
  2                        $____                         150%
  3                        $____                         100%
  4                        $____                          75%
  5                        $____                          50%
</Table>



                                       7
<PAGE>


RETAIL ENERGY - OPERATING INCOME

         Operating income in millions of dollars.

<Table>
<Caption>
                     RETAIL ENERGY
LEVEL               OPERATING INCOME        PAYOUT % OF TARGET
-----               ----------------        ------------------
<S>                 <C>                     <C>
  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
-----           -------------------        ------------------
<S>             <C>                        <C>
  1                    $____                      200%
  2                    $____                      150%
  3                    $____                      100%
  4                    $____                       75%
  5                    $____                       50%
</Table>



                                       8


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