I recently made this transaction with Electrum 1.9.8:
https://blockchain.info/tx/7ba987f202323c302b7cc736436a1858579255b131e4f7332caced3a96d945ed

You'll notice that some change from the transaction went back to 1K2TZGCiP8F2sZHtZ73LtyMQJUygFxwUUH, which is also one of the source addresses.

Why is Electrum returning funds to the same address instead of to a change address?

"Use change addresses" is turned on in the Settings.