Article 8: Non-Profit Organization

Section 8.1 Nonprofit & Cooperative Operation

The Cooperative

1. Shall operate on a nonprofit and cooperative basis for the mutual benefit of all Members
2. Shall not pay interest or dividends on capital furnished by Patrons (defined in Section 2(a) below).

Section 8.2 Allocating Capital Credits

The Cooperative shall allocate Capital Credits as provided in this Section. The Cooperative must allocate Capital Credits in a Patron’s name as shown in the Cooperative’s records, regardless of the Patron’s marital status.

(a) Patron. The term “Patron” means, during a fiscal year:

1. A Member
2. Any other Person using a Cooperative Service

(b) Entity Patron. The term “Entity Patron” means any Patron that is a distinct legal entity or non-natural person, such as a corporation, partnership, organization, or association.

(c) Cooperative Service. The term “Cooperative Service” means the provision of electric service (electric energy and/or services). Such term shall also include the provision of other utility type goods and services to the extent the provision of such goods and services would qualify an organization for exemption from federal income taxation under Section 501(c)(12) of the Internal Revenue Code and for which the Cooperative has a legal obligation to provide such goods and services on a patronage basis through the allocation of Capital Credits. Notwithstanding any provision of these Bylaws to the contrary, Cooperative Service does not include any good or service provided by an affiliate of the Cooperative to its customers.

(d) Allocating Earnings. For each Cooperative Service provided during a fiscal year, the Cooperative shall equitably allocate to each Patron, in proportion to the Patronage, (which is the quantity or value of the Cooperative Service used by the Patron during the fiscal year and timely paid for by the Patron,) the Cooperative’s Patronage Earnings. “Patronage Earnings” means the amount by which the Cooperative’s patronage sourced revenues, income, and gains from and directly related to providing a Cooperative Service exceed the Cooperative’s patronage sourced expenses and losses of providing the Cooperative Service, all as determined under federal cooperative tax law.

Provided, however, for each Cooperative Service, if costs and expenses exceed the amounts received and receivable from and directly related to providing such Cooperative Service, hereinafter referred to as “Patronage Loss”, then the Board of Directors shall have the authority, under accepted accounting practices, loan covenants, and federal cooperative tax law, to prescribe the accounting procedures under which such operating loss may be addressed.

For each fiscal year, the Cooperative may, as determined by the Board, use, retain, or equitably allocate the Cooperative’s nonpatronage earnings. “Nonpatronage Earnings” means revenue, income, and gains in excess of expenses and losses from the provision of a good or service not provided to the Patrons on a patronage basis, including earnings or losses from a subsidiary corporation. Such nonpatronage earnings may be used to offset an operating loss as determined by the Board.

(e) Capital Credits. For each Patronage Earnings amount allocated to a Patron, the Patron shall be deemed to have contributed such amount to the Cooperative as capital. The Cooperative must credit all capital contributions from a Patron to a capital account for the Patron. The Cooperative shall maintain books and records reflecting the capital contributed by each Patron. At the time of receipt by the Cooperative, each capital contribution is treated as though the Cooperative paid the Patronage Earnings amount allocated to the Patron in cash and the Patron contributed the corresponding amount to the Cooperative as capital. The term “Capital Credits” means the amounts allocated to a Patron and contributed by the Patron to the Cooperative as capital.

To secure a Patron’s obligation to pay amounts owed to the Cooperative, including any compounded interest and late payment fee, and in return for the Cooperative providing a Cooperative Service to the Patron, the Cooperative has, and by accepting service, each Patron hereby grants to the Cooperative, a security interest in Capital Credits allocated to the Patron. The Patron authorizes the Cooperative to perfect this security interest by filing a financing statement.

(f) Method of Allocation. Notwithstanding other provisions of this Bylaw, the Board, acting through policy, has the authority to (1) determine the process for annually calculating the amount of Patronage Earnings and Patronage Losses, and (2) determine the kind, timing, method, and type of allocation; provided however, that such methods are fair and equitable on the basis of Patronage. Such policies apply separately to each Cooperative Service and includes, but is not limited to, the authority to determine the items of revenue included in the definition of Patronage.

As reasonable and fair, the Cooperative may allocate Patronage Earnings to different classes of similarly situated Patrons under different manners, methods, and timing, provided the Cooperative allocates Patronage Earnings to similarly situated Patrons under the same manner, method, and timing. If the Cooperative is a member, patron, or owner of an entity from which the Cooperative uses a good or service in providing a Cooperative Service and from which the Cooperative is allocated Patronage Earnings or similar amount, then, as determined by the Board and consistent with this Bylaw, the Cooperative may separately identify and allocate to the Cooperative’s Patrons this capital credit or similar amount allocated by the entity.

(g) Notification of Allocation. Within a reasonable time after the end of each fiscal year, the Cooperative shall notify all Patrons, through general publication or similar method of communication, of the aggregate amount of Capital Credits allocated to the Capital Accounts of all Patrons, and upon request, the Cooperative shall inform an individual Patron of the specific amount of capital credited to the Patron’s capital account.

(h) Joint Memberships. Upon the death of a Joint Member, the Cooperative shall assign and transfer to the surviving Joint Member an equal portion of Capital Credits allocated, or to be allocated, to the surviving Member; or upon the death of both Members of a Joint Membership, the membership will terminate and the balance in the capital account will be subject to the Special Retirement provisions of Article VIII [Non-Profit Operation], Section 4(b) of these Bylaws.

Section 8.3 Assignment of Capital Credits

Subject to the right of offset for any amounts owed the Cooperative, Capital Credits of a Patron or former Patron are assignable only on the books and records of the Cooperative. Except as otherwise provided by the Board or these Bylaws, in order for a Patron to assign or transfer a Patron’s Capital Credits:

1. The Cooperative must receive a written or Electronic request signed by the Patron to assign or transfer the Capital Credits
2. The Patron and the assignee or transferee must comply with all reasonable requirements specified by the Cooperative
3. The Board shall have the right to approve or deny the assignment or transfer in its sole discretion

Section 8.4 Retiring Capital Credits

The Cooperative may retire and pay Capital Credits allocated to Patrons and former Patrons as provided in these Bylaws (“Retired Capital Credits”). If the Cooperative retires and pays Capital Credits, then the Cooperative must retire and pay Capital Credits in a Patron’s name as shown in the Cooperative’s records, regardless of the Patron’s marital status. If the Cooperative mails a Retired Capital Credits payment, then the Cooperative shall mail the payment to the Patron or former Patron’s address as shown in the Cooperative’s records. The Patron’s capital account shall reflect and be reduced by the amount of such retirement.

(a) General Capital Credit Retirements. At any time before the Cooperative’s dissolution, liquidation, or other cessation of existence, the Cooperative may generally retire and pay some or all Capital Credits allocated to Patrons and former Patrons.

(b) Special Capital Credit Retirements. The Cooperative may specially retire and pay some or all Capital Credits allocated to an individual Patron or former Patron in accordance with Section 4(d) of this Article VIII:

1. After the death of the individual
2. After receiving a written or Electronic request from the deceased individual’s heir or authorized representative
3. According to the terms and conditions established by the Cooperative.

The Cooperative may not specially retire and pay Capital Credits allocated to an Entity Patron or former Entity Patron

• (A) during or after the entity’s dissolution, liquidation, or other cessation of existence
• (B) during or after the entity’s reorganization, transfer, merger, or consolidation

(c) Capital Credit Recoupment and Offset. The Cooperative may recoup, offset, or setoff an amount owed to the Cooperative by the Patron or former Patron, including any compounded interest and late payment fee, by reducing the amount of Retired Capital Credits paid to the Patron or former Patron by the amount owed to the Cooperative.

(d) Capital Credit Retirement Discretion. The Cooperative may retire and pay Capital Credits only if the Board determines that the retirement and payment will not adversely impact the Cooperative’s financial condition. Consistent with this Bylaw, the retirement and payment of Capital Credits are in the sole discretion of the Board and are not affected by previous retirements and payments. The manner, method, order, and timing of retiring and paying Capital Credits may be determined only by the Board.

Pursuant to such discretion, the Board shall also have the power, exercisable in its sole discretion to retire all or a portion of Capital Credits of Patrons prior to the time such capital would otherwise be retired under the provisions of these Bylaws or the policies of the Board, but only if the financial condition of the Cooperative will not be impaired. The payment portion of such early retirement may be on a discounted and net present value basis in order to reflect the time value of money. Such policies shall establish the criteria used in determining the discounted and net present value of early retirements. The discount, which is the difference between the total of Capital Credits retired and the cash payment of such early retirement, shall be deemed a contribution of capital to and part of the net savings of the Cooperative. Subject to Board action that legally binds the Cooperative to maintain records of the discount by Patron or former Patron, the discount shall be a form of retained but allocated capital for purposes of distributing the cumulative amount of all such discounts to the respective Patron or former Patron upon dissolution and liquidation of the Cooperative.

(e) Different and Separate Capital Credit Retirements. As reasonable and fair, the Cooperative may retire and pay Capital Credits to separately established classes of similarly situated Patrons and former Patrons under different manners, methods, and timing, provided the Cooperative retires and pays Capital Credits to such separately established similarly situated Patrons and former Patrons under the same manner, method, and timing. If the Cooperative separately identified and allocated Capital Credits representing capital credits or similar amounts allocated to the Cooperative by an entity in which the Cooperative is or was a member, patron, or owner, then the Cooperative may retire and pay these Capital Credits only after the entity retires and pays the capital credits or similar amounts to the Cooperative.

(f) Unclaimed Retired Capital Credits. The Cooperative may receive returned retired Capital Credits that members have failed to claim or may receive notifications as a result of members' failure to cash retired Capital Credits. In each instance, the Cooperative will void any unclaimed or uncashed retired Capital Credits within 90 days of issuance. The Cooperative may post on its website the names of members with retired Capital Credits that have been unclaimed or uncashed. When retired Capital Credits remain unclaimed after 3 years, those amounts may be delivered in accordance with Section 74.3013 of the Texas Property Code. Otherwise, the Cooperative will notify the member regarding any unclaimed retired Capital Credits in accordance with the current State of Texas unclaimed property laws and following such notice to those members, such retired Capital Credits will be reported and remitted to the State Comptroller's Office as required by law.

Section 8.5 Patron Agreement

Each Patron and former Patron agrees that:

1. Capital Credits are not securities under state or federal law
2. The Patron’s right to Capital Credits becomes payable only upon the Cooperative retiring the Capital Credits as provided in these Bylaws, and not upon the Cooperative allocating the Capital Credits
3. As required by law, each Patron will: (A) report to the appropriate entity all allocated or retired Capital Credits; and (B) pay the appropriate entity any tax or similar amount on allocated or Retired Capital Credits. To the extent that the Cooperative is required to make any tax withholding amounts from the retirement or payment of such Capital Credits, the Patron acknowledges and agrees to such withholding.

Section 8.6 Non-Member Patrons & Non-Patrons

As a condition of using a Cooperative Service, and except as otherwise provided by the Board:

1. To the same extent as a Member, a Patron who is not a Member (“Non-Member Patron”) and a Person Using a Cooperative Service who is not a Member or Patron (“Non-Patron”) must abide by and be bound to the duties, obligations, liabilities, and responsibilities imposed by the Governing Documents upon Members
2. A Non-Member Patron or Non-Member former Patron has none of the rights granted by the Governing Documents to Members, other than the rights to:
   • (A)Be allocated Capital Credits
   • (B) Be paid Retired Capital Credits
3. A Non-Patron or former Non-Patron has none of the rights granted by the Governing Documents to Members.