BYLAWS
OF
NORTH ITASCA
ELECTRIC CO-OP., INC.

ARTICLE VII
DISTRIBUTION OF EARNINGS

Section 2.   PATRONAGE CAPITAL IN CONNECTION WITH DELIVERY AND SALE OF ELECTRIC ENERGY.

In the delivery and sale of electric energy, the Cooperative’s operations shall be so conducted that all members 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 its members for all amounts received and receivable from the delivery and sale of electric energy in excess of operating costs and expenses properly chargeable against the delivery and sale 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 patronage capital. The Cooperative is obligated to pay by credits to a patronage capital account for each member all such amounts in excess of operating costs, expenses, and such reserves authorized by these by-laws which may be established by the Board of Directors. 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 patronage, if any, so furnished by each member is clearly reflected and credited in an appropriate record to the patronage account of each member.

All amounts received by the Cooperative from its operations in excess of cost and expenses shall, insofar as permitted by law, be:
   (a) used to offset any losses incurred during the current or any prior fiscal year and,
   (b) to the extent not needed for that purpose, allocated to its members on a patronage basis and any amount so allocated shall be included as part of the patronage capital credited to the accounts of members, as herein provided.

The Cooperative may set aside such part of its net income as its Board of Directors deems advisable for the purpose of creating or maintaining a reserve, and may establish and accumulate reserves for new buildings, machinery, and equipment, depreciation, losses and other proper purposes.

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 be retired without priority on a pro rata basis before any payments are made on account of property rights of members. 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, the patronage capital credited to members’ accounts may be retired in full or in part. The Board of Directors shall determine the method, basis, priority and order of retirement, if any, for all amounts heretofore and hereafter credited as patronage capital.

In no event, however, shall any patronage capital credits be retired contrary to the provisions of any unsatisfied mortgage executed by the Cooperative.

The members of the Cooperative, by dealing with the Cooperative acknowledge that the terms and provisions of this Article and the By-Laws shall constitute and be a contract between the Cooperative and each member and patron, and the Cooperative and the members and patrons are bound by such contract, as fully as though each member and patron had individually signed a separate instrument containing such terms and provisions. The provisions of this Article of the bylaws shall be called to the attention of each member and patron of the Cooperative by posting in a conspicuous place in the Cooperative’s office.

Section 3.   PATRONAGE REFUNDS IN CONNECTION WITH FURNISHING OTHER SERVICES.

In the event that the Cooperative should engage in the business of furnishing goods or services other than the delivery and sale of electric energy to members, all amounts received and receivable therefrom which are in excess of costs, expenses, and such reserves authorized by these by-laws and established by the Board of Directors, shall be allocated annually to the members of this Cooperative on a patronage basis. The Board of Directors shall determine the method, basis, priority, and order of retirement, if any, for all such amounts heretofore or hereafter furnished as capital.