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ITEM 9.b. TOWN OF FOUNTAIN HILLS STAFF REPORT Meeting Date: 6/16/2026 Meeting Type: Town Council Regular Meeting Submitting Department: Multi-Departmental Prepared by: Paul Soldinger, Chief Financial Officer Staff Contact Information: Phone: 480-816-5160 Email: psoldinger@fountainhillsaz.gov Request to Town Council Regular Meeting (Agenda Language) CONSIDERATION AND POSSIBLE ACTION: Regarding the Proposed Energy Savings Capital Project for Parking Shade Structure and Solar Panels for Town Hall Campus Visitors Staff Summary (background) Background Staff initiated an energy audit process with Veregy LLC (Veregy) in early 2026 to evaluate possible energy savings solutions across the Town parks and facilities. Veregy completed an initial energy audit by evaluating detailed interval energy data from the Town's utility provider (SRP) and toured Town facilities with staff. Veregy recommended that the Town consider several energy savings opportunities, but in particular, proposed a parking structure project that would allow the Town to save about $81,000 of electrical costs in the first year of project completion. Under Arizona laws for performance contracting and through cooperative agreement 1GPA Contract #22-07P-08, Veregy has proposed a contract for the project that guarantees the Town would save $81,000 in the first year, and calculates that with eligible Federal rebate incentives for energy-efficient improvements, the project would pay for itself in about 15 years, assuming a 4.5% annual increase in electric utility rates. Project Description This Guaranteed Energy Services Agreement with Veregy, is for the proposed design and construction of solar-powered parking shade structures at the Town Hall/Community Center civic campus. The proposed project would install approximately 597 kW-DC of solar generation capacity across two interconnections, at Town Hall and at the Community Center. In addition to the solar energy system, the project includes covered parking canopies, under- canopy lighting, associated electrical infrastructure, foundations, utility coordination with SRP, and restoration of affected parking, concrete, landscaping, and irrigation areas. The project would provide approximately 128 covered parking spaces serving Town Hall, the Community Center, and nearby public facilities, improving the experience for residents and visitors during high-temperature months. Guaranteed Energy Savings / Performance Contract Structure The project is structured as a guaranteed energy savings/performance-based capital project. Arizona law authorizes public agencies, including towns, to enter into guaranteed energy cost savings contracts with qualified providers when the agency determines that the amount spent on energy cost savings measures will not exceed the amount saved in energy costs over the applicable contract term. Part of these requirements and within the proposed contract, it states that Veregy will be responsible to pay back the Town if it does not achieve the guaranteed amount of energy savings based on Veregy's projections. Financial Considerations The total proposed contract amount is $2,390,900. Under the contract schedule, the project is expected to generate $1,604,173 in guaranteed energy cost savings over the 15-year contract term. The project may also be eligible for a federal Inflation Reduction Act clean energy elective- pay benefit, commonly referred to as a direct-pay federal tax credit or rebate. The project financial schedule assumes a potential IRA/elective-pay benefit of approximately $956,360, which represents an assumed 40% federal benefit based on the project cost. However, the Federal rebates are not guaranteed. The Town has contracted with an independent energy tax advisor which provided an initial evaluation of the proposed project with positive assurances included. Veregy has also included several contract provisions stating that Veregy will make commercial efforts to support the Town in obtaining the rebates. Combined, the contract schedule identifies total avoided energy, operational, and related costs of approximately $2,560,533 over the 15-year term. Lastly, the solar panels are expected to have a useful life of about 30-35 years, which will create additional energy savings for the Town long after the contract term ends. From a budget perspective, the project is intended to reduce the Town’s long-term exposure to rising utility costs by generating a portion of the Town’s electricity on site. This is particularly relevant in Arizona, where utility costs and future rate pressure continue to be a budget concern due to load growth, infrastructure needs, inflation, and increasing peak- demand conditions. Long-Term Operational Considerations Other long-term considerations include that Veregy will charge an annual fee, starting at $4,455, to complete its measurement and verification (M&V) process each year to ensure the Town has received its guaranteed savings based on the project's electricity output. However, the Town will have the option of canceling the M&V process and related fee any year of the contract term. Further, the Town's insurance costs will increase by an estimated $4,000 - $5,000 in the first year after project completion to insure the new parking structure and solar panels. There may also be staff time used to clean and maintain the new infrastructure. Federal Rebate Timing The federal incentive opportunity is a significant reason for bringing the project forward at this time. Under Federal rebate guidance, if the Town begins this project before July 4, 2026, then the project can extend up to 4 years and still be eligible for possible Federal rebates if there are delays to the construction schedule. If the project begins after July 4, 2026, then the Town would need to complete the project and energize the system before December 31, 2027 which would leave very little room for possible construction delays to qualify for Federal rebates. Staff will separately address and work with contracted energy tax advisors for the documentation requirements, and risks related to the timing, amount, and eligibility of any Federal rebates. Budget Authority and Project Schedule If approved by the Council, Veregy will deliver solar panels and other equipment onsite to meet Federal rebate continuous construction requirements and will require an upfront payment of 7% of the project costs, or $167,363 that would be paid using the FY2026 existing contingency budget authority in the Capital Projects Fund. Staff will also process budget authority transfers from the Capital Projects Fund contingency in the FY2027 budget to allow design and construction work on the project to continue between July 2026 and June 2027. Staff will also include sufficient budget authority in the Capital Projects Fund during FY2028 budget planning to facilitate completion of the project by approximately August 2027. Related Ordinance, Policy or Guiding Principle Arizona Revised Statutes (A.R.S.) § 34-455 Risk Analysis N/A Recommendation(s) by Board(s) or Commission(s) N/A Staff Recommendation(s) Staff recommends approval because the project advances multiple Town objectives: investing in public infrastructure, improving resident and visitor amenities, reducing future utility exposure, using available federal clean energy incentives, and adding long-term solar generation capacity at key Town facilities. Suggested Motion MOVE TO APPROVE Proposed Energy Savings Capital Project for Parking Shade Structure and Solar Panels, and all steps necessary to execute contracts to initiate and administer the project to completion FISCAL IMPACT Fiscal Impact: $2,390,900 Budget Reference: FY2026 ($167,367 for upfront payment to receive solar panels to meet Federal rebate requirements); FY2027 (up to $1.4 million for design and initiating construction of the project); FY2028 (remaining project costs); Staff will apply for Federal rebates in FY2028 after project completion for up to 40% Reimbursement ($956,384 Potential ITC Rebates) Funding Source: Capital Projects Fund ATTACHMENTS 1. Fountain Hills Performance Contract 2. Town Energy Expenditures - FY23 through FY25 3. ETSI FEOC Letter 4. Veregy LLC Energy Savings Project Presentation