1.     Purpose.

            The WPS Resources Corporation Short-Term Variable Pay Plan (the "Plan") has been established effective January 1, 1998, and is amended effective January 1, 1999 as set forth herein, to promote the best interests of WPS Resources Corporation ("Company") and the stockholders of the Company by (a) attracting and retaining key employees possessing a strong interest in the above-average performance of the Company and its subsidiaries and (b) encouraging their continued loyalty, service and counsel.

     2.     Administration.

            The Plan will be administered by the Compensation Committee of the Board of Directors of the Company (the "Committee"). The Committee shall have full and final authority and discretion to conclusively interpret the provisions of the Plan and to decide all questions of fact arising under the Plan, including the authority and discretion to:

(i)   determine those employees who are eligible to participate in the Plan for any year;

(ii)  review and from time to time and revise factors on which incentive compensation awards may be based;

(iii) determine the amount (if any) awarded or to be awarded under the Plan to any employee for any year; and

(iv)  to make all other determinations respecting the administration, operation and interpretation of the Plan that the Committee, in its sole discretion, determines to be necessary or appropriate.

     3.     Designation of Participating Employees.

            (a)  For each calendar year for which this Plan is in effect, the Committee shall designate:

(i)   those employees of the Company and its subsidiaries who are eligible to participate in the Plan for such year ("Participants");

(ii)  the Target Award applicable to each Participant for such year (see Section 7); and

(iii) whether each Participant is a Utility Participant or a Non-Utility Participant.

            (b)  An employee's participation in the Plan in any year, and any amounts awarded to the employee under the Plan for any such year, does not imply that the employee is entitled to participate in or receive an award under the Plan for any subsequent year.

            (c)  Nothing in the Plan shall interfere with or limit in any way the right of the Company or any subsidiary of the Company to terminate an employee's employment at any time nor confer upon any employee any right to continue in the employ of the Company or any subsidiary.

     4.     Award of Incentive Compensation.

            A Participant shall not have any right to an amount under this Plan until the Committee has awarded such amount to the Participant. The incentive compensation (if any) awarded to a Participant with respect to any calendar year will be an amount determined by the Committee based on both qualitative and quantitative measurements of Participant and employer performance, including, without limitation (1) utility year-end net income, (2) system reliability, (3) safety, (4) non-utility earnings per share contribution, (5) non-utility customer account growth and retention, (6) customer satisfaction and response to customer complaints, (7) environmental strategy, and (8) such other factors as the Committee in its discretion may consider relevant. In determining the amount of any incentive compensation to be awarded, the Committee may take into account the amounts determined under two non-binding target awards known as the Utility Performance Award and the Non-Utility Performance Award. In no event will the Committee make an award to a Participant unless the Participant was employed on December 31 of the year to which the award relates or the Participant terminated employment prior to December 31 of such year on account of retirement on or after age 58, permanent and total disability (as defined in the Company's long-term disability plan) or death.

     5.     Utility Performance Award.

            (a)  A Participant's Utility Performance Award for any year equals:

(i)   the Participant's Base Salary for such year multiplied by

(ii)  0.75 (if the Participant has been designated as a Utility Participant) or 0.25 (if the Participant has been designated as a Non-Utility Participant), multiplied by

(iii) the factor determined in accordance with Section 5(d).

            (b)  The Committee, in its sole discretion, may adjust the 0.75 and 0.25 factors specified in Section 5(a)(ii) above.

            (c)  Definitions.

(i)   "Base Salary" means base salary paid to the Participant by the Company and/or a consolidated subsidiary of the Company for services performed by the Participant during the applicable calendar year for which he or she has been designated as a Participant in the Plan. Base Salary shall include amounts that would have been paid to the Participant as base salary but for the fact that the Participant elected to defer such amounts as an elective contribution under a Section 125, 129 or 401(k) arrangement or as a Voluntary Deferral under the WPS Resources Corporation Deferred Compensation Plan. Base Salary shall not include extraordinary payments made to or on behalf of the Participant, such as overtime, bonuses, meal allowances, reimbursed expenses (including any tax "gross-up" payments), termination pay, moving pay, commuting expenses, Mandatory Deferrals under the WPS Resources Deferred Compensation Plan or other non-elective deferred compensation payments or accruals, stock options, the value of employer-provided fringe benefits or coverage, any contributions on behalf of the Participant to a survivor's income benefit plan or any other employee benefit plan within the meaning of ERISA, all as determined in accordance with such uniform rules, regulations or standards as may be prescribed by the Committee. In the case of an employee who is designated as a Participant after the first day of the calendar year, the Committee may elect to apply the foregoing definition with respect to the Base Salary received by the Participant on and after the effective date of his or her participation.

(ii)  "Net Income" for any year means Wisconsin Public Service Corporation's after-tax earnings on common stock as reported in the Company's Form 10-K Annual Report for that year, as further adjusted by the Committee in its discretion to exclude from Net Income the effects of extraordinary items, non-recurring items or any other items that the Committee determines should be excluded from the definition of Net Income for purposes of this Plan.

            (d)  For each year during which the Plan is in effect, the Committee will prescribe the criteria by (or from) which the factor applicable under Section 5(a)(iii) will be determined. Such criteria may take into account Wisconsin Public Service Corporation's Net Income or such other factors as the Committee, in its sole discretion, may determine.

     6.     Non-Utility Performance Award.

            (a)  A Participant's Non-Utility Performance Award for any year equals:

(i)   the Participant's Target Award for such year multiplied by

(ii)  0.25 (if the Participant has been designated as a Utility Participant) or 0.75 (if the Participant has been designated as a Non-Utility Participant), multiplied by

(iii) the factor determined in accordance with Section 6(d).

            (b)  The Committee, in its sole discretion, may adjust the 0.25 and 0.75 factors specified in Section 6(a)(ii) above.

            (c)  Definitions.

(i)   "EPS Impact" means, with respect to any calendar year, the fully diluted earnings per share of the Company taking into account only the after-tax net income of WPS Energy Services, Inc. and WPS Power Development, Inc. and their consolidated subsidiaries, as calculated to the nearest one-tenth of one cent in accordance with FASB 128 or any successor pronouncement and in a manner consistent with the methodology used by the Company and its consolidated subsidiaries for the purpose of reporting earnings per share information generally. The Committee in its discretion, may adjust such after-tax net income to (A) include the proportionate share of the after-tax net income of a non-consolidated subsidiary, and (B) exclude the effects of extraordinary, non-recurring items or any other items that the Committee determines should be excluded for purposes of this Plan.

(ii)  "Account Retention" means, with respect to any calendar year, the percentage of "Accounts" actively served on January 1 of the calendar year that the Company or its non-utility subsidiaries continue to serve on December 31 of the same calendar year, rounded to the nearest one-tenth (1/10) of one percent.

(iii) "Account" means an actively served customer account entered into by an agent or employee of the customer who has the authority to contract with WPS Energy Services, Inc. or WPS Power Development, Inc. with respect to all or a portion of the customer's business. Where a customer has multiple contracts with WPS Energy Services, Inc. and/or WPS Power Development, Inc., such contracts, although originating with the same customer, may be considered separate Accounts for purposes of this Plan to the extent that the contracts are entered into or authorized by different contacts at the customer each of whom has independent authority to contract with WPS Energy Services, Inc. and/or WPS Power Development, Inc.

(iv) "Account Growth" means, with respect to any calendar year, (i) the total number of Accounts on December 31 of the calendar year minus the total number of Accounts on January 1 of the calendar year, this amount divided by (ii) the total number of Accounts on January 1 of the calendar year. This quotient shall be rounded to the nearest one-tenth (1/10) of one percent.

            (d)  For each year during which the Plan is in effect, the Committee will prescribe the criteria by (or from) which the factor applicable under Section 6(a)(iii) will be determined. Such criteria may take into account EPS Impact, Account Retention, Account Growth or such other factors as the Committee, in its sole discretion, may determine.

     7.     Target Award

            (a)  The Target Award for each Participant shall be an amount or percentage of Base Salary selected by the Committee.

            (b)  The Target Award assigned to a Participant is relevant solely for purposes of the non-binding calculation described in Section 6 above. The establishment of a Target Award with respect to any Participant does not imply that the Participant is or will become entitled to incentive compensation in the amount of the Target Award.

     8.     Distribution.

            (a)  Unless deferred in accordance with Section 8(b) below, incentive compensation amounts awarded under this Plan shall be paid to the eligible Participant (less applicable withholding) as soon as practicable following the date on which such payment has been authorized by the Committee.

            (b)  A Participant may, but need not, elect to defer the receipt of all or any portion of the incentive compensation amounts awarded to the Participant under this Plan. If the Participant so elects, the deferred portion of the Participant's incentive compensation award will be credited to the Participant's Stock Account under the WPS Resources Corporation Deferred Compensation Plan ("Deferred Compensation Plan") for later distribution in accordance with the terms of the Deferred Compensation Plan and the Participant's elections under that plan. A Participant's election to defer all or a portion of his award under this Plan for any year shall be given effect only if the Participant's executed deferral election is received by the Committee or its delegate prior to January 1 of the calendar year during which the incentive compensation will be earned, e.g., prior to January 1, 1999 for deferral of incentive compensation amounts that may be earned in 1999. Notwithstanding the foregoing, in the case of a Participant who is designated by the Committee as being eligible to participate with respect to a particular calendar year after the beginning of such year, the Participant's deferral election for such year may be made within 30 days of the date on which the Committee designates the Participant as being eligible to participate in the Plan.

     9.     Amendment or Termination.

            The Committee may amend, modify or terminate the Plan at any time and for any reason, including, without limitation, the authority to alter at any time during the calendar year the amount of incentive compensation that is available or potentially available to Participants with respect to the calendar year or the terms and conditions under which such incentive compensation is or will become payable.

    10.     Participant Rights Unsecured.

             The right of a Participant to receive a distribution of incentive compensation awarded hereunder shall be an unsecured claim, and the Participant shall not have any rights in or against any specific assets of the Company or any of its subsidiaries. The right of a Participant to the payment of incentive compensation that has been awarded or may be awarded under this Plan may not in any manner be subject to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment; provided that any benefits awarded to the Participant but unpaid as of the date of the Participant's death shall be paid to the Participant's estate.

    11.     Successor and Assigns.

             This Plan, with respect to any amount awarded to a Participant by the Committee in accordance with Section 4, shall be binding upon and inure to the benefit of the Company and its subsidiaries, their successors and assigns and to the Participant and the executor, administrator or legal representative of the Participant's estate.

    12.     Governing Law.

             This Plan shall be governed by and construed in accordance with the law of the State of Wisconsin.