Free Market Energy Act

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Free Market Energy Act''.

SEC. 2. DEFINITION OF DISTRIBUTED ENERGY RESOURCE.

    Section 3 of the Federal Power Act (16 U.S.C. 796) is amended by 
adding at the end the following:
            ``(30) Distributed energy resource.--The term `distributed 
        energy resource' means a resource, technology, or service 
        interconnected to the electricity distribution system that 
        generates, manages, or reduces energy use.''.

SEC. 3. GENERAL RIGHT TO NEUTRALITY OF INTERCONNECTION.

    The Public Utility Regulatory Policies Act of 1978 is amended by 
inserting after section 4 (16 U.S.C. 2603) the following:

``SEC. 5. GENERAL RIGHT TO NEUTRALITY OF INTERCONNECTION.

    ``(a) In General.--Distributed energy resources (as defined in 
section 3 of the Federal Power Act (16 U.S.C. 796)) shall have a 
general right of interconnection under this Act.
    ``(b) Rates and Fees.--States shall ensure that electric 
distribution grid operators adopt standards, conditions, and 
requirements for rates and fees for interconnection of distributed 
energy resources under this Act, that--
            ``(1) are just and reasonable;
            ``(2) provide for the 2-way benefit for the distributed 
        energy resource and the electricity grid; and
            ``(3) shall not be punitive.
    ``(c) Timeframes.--
            ``(1) In general.--Timeframes for interconnection of 
        distributed energy resources under this Act shall be well-
        defined, expeditious, and not unduly protracted.
            ``(2) Delays or denial.--An interconnection of distributed 
        energy resources under this Act shall not be delayed or denied 
        unless the electric utility demonstrates that the 
        interconnection is unsafe or impracticable.''.

SEC. 4. ENERGY AND RATE TREATMENTS FOR DISTRIBUTED ENERGY RESOURCES.

    Section 111(d) of the Public Utility Regulatory Policies Act of 
1978 (16 U.S.C. 2621(d)) is amended by adding at the end the following:
            ``(20) Distributed energy resources.--
                    ``(A) In general.--If a State regulatory authority 
                considers, through a rate proceeding or another 
                mechanism (such as consideration of fixed or minimum 
                charges), modifying the treatment of net energy 
                metering customers, the State regulatory authority 
                shall consider requiring that distributed energy 
                resources (as defined in section 3 of the Federal Power 
                Act (16 U.S.C. 796)) be eligible to receive just and 
                reasonable energy and rate treatment using dynamic 
                pricing, which may account for locational benefit, to 
                be provided on an unbundled basis, after accounting for 
                the 2-way valuation of dynamic rates, for services 
                provided to or provided by the grid, including the 
                considerations with respect to the use of dynamic 
                pricing described in subparagraph (B).
                    ``(B) Considerations.--The considerations for the 
                use of dynamic pricing referred to in subparagraph (A) 
                include--
                            ``(i)(I) pricing for energy sold to an 
                        electric utility; and
                            ``(II) pricing for energy purchased from an 
                        electric utility;
                            ``(ii) capacity;
                            ``(iii) the provision of ancillary 
                        services;
                            ``(iv) the societal value of distributed 
                        energy resources;
                            ``(v) transmission and distribution losses; 
                        and
                            ``(vi) any other benefits that the State 
                        regulatory authority considers to be 
                        appropriate.''.

SEC. 5. CONSIDERATION OF NONTRANSMISSION ALTERNATIVES.

    Section 111(d) of the Public Utility Regulatory Policies Act of 
1978 (16 U.S.C. 2621(d)) (as amended by section 4) is amended by adding 
at the end the following:
            ``(21) Nontransmission alternatives.--
                    ``(A) In general.--Each State regulatory authority 
                or applicable Regional Transmission Organization or 
                Independent System Operator shall consider 
                nontransmission alternatives in instances in which an 
                entity proposes transmission projects seeking cost-of-
                service rate recovery.
                    ``(B) Cost.--To reduce the cost to the ratepayer of 
                a potential transmission upgrade, a nontransmission 
                alternative considered under subparagraph (A), the cost 
                of the nontransmission alternative shall be recovered 
                from the ratebase or regional recovery mechanism in the 
                same manner as the transmission upgrade would have 
                been.''.

SEC. 6. PRIOR STATE ACTIONS.

    (a) In General.--Section 112 of the Public Utility Regulatory 
Policies Act of 1978 (16 U.S.C. 2622) is amended by adding at the end 
the following:
    ``(g) Prior State Actions.--Subsections (b) and (c) shall not apply 
to a standard established under paragraphs (20) and (21) of section 
111(d) in the case of any electric utility in a State if, before the 
date of enactment of this subsection--
            ``(1) the State has implemented for the electric utility 
        the standard (or a comparable standard);
            ``(2) the State regulatory authority for the State, or the 
        relevant nonregulated electric utility, has conducted a 
        proceeding to consider implementation of the standard (or a 
        comparable standard) for the electric utility; or
            ``(3) the State legislature has voted on the implementation 
        of the standard (or a comparable standard) for the electric 
        utility.''.
    (b) Cross-Reference.--Section 124 of the Public Utility Regulatory 
Policies Act of 1978 (16 U.S.C. 2634) is amended by adding at the end 
the following: ``In the case of each standard established under 
paragraphs (20) and (21) of section 111(d), the reference contained in 
this subsection to the date of enactment of this Act shall be deemed to 
be a reference to the date of enactment of those paragraphs.''.

SEC. 7. EFFECT.

    Nothing in this Act (or an amendment made by this Act) shall apply 
to distributed energy resource contracts in effect on the date of 
enactment of this Act.

Summary: Free Market Energy Act This bill amends: (1) the Federal Power Act to define &quot;distributed energy resource&quot; as a resource, technology, or service interconnected to the electricity distribution system that generates, manages, or reduces energy use; and (2) the Public Utility Regulatory Policies Act of 1978 to provide that distributed energy resources shall have a general right of interconnection under such Act. States must ensure that electric distribution grid operators adopt requirements for interconnection rates and fees that are just and reasonable, that provide for the two-way benefit for the distributed energy resource and the electricity grid, and that are not punitive. Time frames for interconnection shall be well-defined, expeditious, and not unduly protracted. An interconnection may not be delayed or denied unless the electric utility demonstrates that the interconnection is unsafe or impracticable. A state regulatory authority that considers modifying the treatment of net energy metering customers must consider requiring that distributed energy resources be eligible to receive just and reasonable energy and rate treatment using dynamic pricing, which may account for locational benefit, to be provided on an unbundled basis, after accounting for the two-way valuation of dynamic rates, for services provided to or by the grid. Dynamic pricing considerations shall include:   pricing for energy sold to, and pricing for energy purchased from, an electric utility, capacity, the provision of ancillary services, the societal value of distributed energy resources, and  transmission and distribution losses.  A state regulatory authority or applicable Regional Transmission Organization or Independent System Operator must consider nontransmission alternatives in instances in which an entity proposes transmission projects seeking cost-of-service rate recovery. To reduce the cost to the ratepayer of a potential transmission upgrade, the cost of the nontransmission alternative shall be recovered from the ratebase or regional recovery mechanism in the same manner as the transmission upgrade otherwise would have been.