Section 10.01. Interest or Dividends on Capital Prohibited
The Cooperative shall at all times be operated on a cooperative nonprofit basis for the mutual benefit of its patrons.  No interest or dividends shall be paid or payable by the Cooperative on any capital furnished by its patrons.

Section 10.02. Patronage Capital in Connection with Furnishing Electric Energy
In the furnishing of electric energy the Cooperative’s operation shall be so conducted that all members receiving retail electric service will through their patronage furnish capital for the Cooperative.  In order to induce patronage and to assure that the Cooperative will operate on a non-profit basis, the Cooperative is obligated to account on a patronage basis to all of its members for all amounts received and receivable from the furnishing of electric energy in excess of operating costs and expenses properly chargeable against the furnishing of electric energy.  All such amounts in excess of operating costs and expenses at the moment of receipt by the Cooperative are received with the understanding that they are furnished by the members as capital.  Patronage capital shall be determined on the basis of federal income tax reporting.

Section 10.03. Patronage Capital – Accounts
The Cooperative is obligated to pay by credits to a capital account for each member all such amounts in excess of operating costs and expenses.  The books and records of the Cooperative shall be set up and kept in such a manner that at the end of each fiscal year the amount of capital, if any, so furnished by each member is clearly reflected and credited in an appropriate record to the capital account of each member, and the Cooperative shall within a reasonable time after the close of the fiscal year notify each member of the amount of capital so credited to his or her account: PROVIDED, that individual notices of such amounts furnished by each member shall not be required if the Cooperative notifies all members of the aggregate amount of such excess and provides an explanation of how each member may compute and determine the specific amount of capital so credited to him or her.  All such amounts credited to the capital account of any member shall have the same status as though they had been paid to the member in cash in pursuance of a legal obligation to do so and the member had then furnished the Cooperative corresponding amounts of capital.

Section 10.04. Other Patronage Capital – Allocation
All other amounts received by the Cooperative from its operations in excess of costs and expenses shall, insofar as permitted by law, be:

(a)used to offset any losses incurred during the current or any prior fiscal year;

(b)to the extent not needed for that purpose, allocated to its members on a patronage basis, based upon the margins contributed by a member or class of members, and any amount so allocated shall be included as a part of the capital credited to the accounts of members, as herein provided.

Section 10.05.Patronage Capital from Other Organizations
Notwithstanding any other provisions of these bylaws, the Board of Directors shall have the power to adopt rules providing for the method of accounting for the procedure for the retirement of that portion (“power supply or other service or supply portion”) of capital credited to the accounts of members which corresponds to capital credited to the account of the Cooperative by other organizations in which the Cooperative is a member or by other organizations furnishing electric service or any other service or supply to the Cooperative.  Such rules shall, among other things:

(a)establish a method for determining the portion of such capital credited to each member for each applicable fiscal year;

(b)provide for separate identification on the Cooperative’s books of such portion or portions of capital credited to the Cooperative’s members;

(c)provide for appropriate notifications to members with respect to such portion or portions of capital credited to their accounts; and

(d)preclude a general or special retirement of such portion or portions of capital prior to the actual receipt of such capital by the Cooperative.

Section 10.06.Patronage Capital – Distribution Prior to Dissolution
If, at any time prior to dissolution or liquidation, the Board of Directors shall determine that the financial condition of the Cooperative will not be impaired thereby, and that no mortgage requirements or other contractual obligations of the Cooperative will be violated, the capital then credited to members’ accounts may be retired in full or in part.  The retirements in any given year shall be made in such aggregate amounts and for all or a portion of such one or more years as the Board of Directors, in its discretion, shall determine.

In making retirements of capital credits in any given year, all or a portion of the aggregate amounts shall be retired on the basis of the order in which the capital was contributed (either first-in-first-out or last-in-first-out) or either on a pro-rata basis without regard to the order of contribution.  The method of retirement or the apportionment between methods of retirement shall be determined by policies adopted from time to time by the Board of Directors.

Section 10.07. Patronage Capital – Dissolution
In the event of dissolution or liquidation of the Cooperative, after all outstanding indebtedness of the Cooperative shall have been paid, outstanding capital credits shall then be retired without priority on a pro-rata basis before any payments are made on account of property rights of members.

Section 10.08.  Patronage Capital – Deceased Members
Notwithstanding any other provisions of these By-Laws, the Board of Directors at its discretion shall have the power at any time, upon the death of any member who was a natural person, if the representative of his estate shall present evidence as required by the Board of Directors and request in writing that the capital credited to any such member be retired prior to the time such capital would otherwise be retired under the provisions of these bylaws or the policies of the Board of Directors then in effect, to retire such capital, discounted to present value, immediately upon such terms and conditions as the Board of Directors, acting under policies of general application to situations of like kind, and such representative shall agree upon.  PROVIDED, however, that such retirements may be made only if the Board of Directors determine that the financial condition of the Cooperative will not be impaired thereby.

Section 10.09.  Patronage Capital – Assignability
Capital credited to the account of each member shall be assignable only on the books of the Cooperative pursuant to written instructions from the assignor and only to the cooperative or to successors in interest or successors in occupancy of all or a part of such member’s premises served by the Cooperative, unless the Board of Directors acting under policies of general application, shall determine otherwise.

Section 10.10.  Patronage Capital – Right of Set-Off
If a member should terminate his or her membership in the Cooperative, or if said membership is terminated by action of the Board of Directors or by the members at a membership meeting, and at the time of such termination the member is indebted to the Cooperative for non-payment of any debt or obligation, which may include electric service, penalties, and/or other fees and services rendered as provided for in the policies of the Cooperative, the Cooperative may, before retiring any capital credited to such member, charge the same to the capital credit account of such member and deduct therefrom any amount owed by such member to the Cooperative, plus accrued interest at a rate established by the Board of Directors.