II 114th CONGRESS 1st Session S. 1213 IN THE SENATE OF THE UNITED STATES May 6, 2015 Mr. King introduced the following bill; which was read twice and referred to the Committee on Energy and Natural Resources A BILL To amend the Public Utility Regulatory Policies Act of 1978 and the Federal Power Act to facilitate the free market for distributed energy resources.

1. Short title This Act may be cited as the Free Market Energy Act of 2015 . 2. Findings Congress finds that it is in the public interest— (1) to enhance personal freedom and national security by reinforcing the right to sovereignty over personal energy choices; and (2) to enhance the diversity of the electricity supply and energy independence of the United States by ensuring that there is a free market for distributed energy resources by providing for the nondiscriminatory interconnection of distributed energy resources. 3. 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 is a resource on the electricity distribution system that includes— (A) distributed fossil generation; (B) renewable generation (including biomass, solar photovoltaics, geothermal, and hydropower); (C) fuel cells; (D) combined heat and power systems; (E) energy storage; (F) demand response; (G) efficiency resources; (H) microgrids; and (I) any combination of the resources described in this paragraph. . 4. 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: 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 All rates and fees for interconnection of distributed energy resources under this Act, regardless of whether the distributed energy resource is a qualifying facility, shall— (1) be just and reasonable; (2) provide for the 2-way benefit for the distributed energy resource and the electricity grid; (3) shall not exceed the actual cost of service; and (4) shall not be punitive. (c) Timeframes Timeframes for interconnection of distributed energy resources under this Act, regardless of whether the distributed energy resource is a qualifying facility, shall be well-defined, expeditious, and not unduly protracted. . 5. 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 Each 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 for— (A) time-of-use pricing, which may account for locational benefit, to be provided on an unbundled basis, after accounting for the 2-way valuation of time-of-use rates, and progressing to real-time pricing, for— (i) energy sold to an electric utility; and (ii) energy purchased from an electric utility; (B) capacity; (C) energy conservation; (D) demand-side management or demand response; (E) peak monthly demand; (F) the provision of ancillary services; (G) the societal value of distributed energy resources; and (H) any other benefits that the State regulatory authority considers to be appropriate. . 6. Qualifying facility; improved interconnection standards for distributed energy resources (a) Definition of qualifying facilities Section 3 of the Federal Power Act ( 16 U.S.C. 796 ) is amended— (1) in paragraph (17)(C)— (A) by indenting appropriately; and (B) by inserting (including a distributed energy resource in any State in which a State regulatory authority or nonregulated electric utility determines not to establish standards in accordance with paragraph (20) of section 111(d) of the Public Utility Regulatory Policies Act of 1978 ( 16 U.S.C. 2621(d) )) before that the Commission determines ; and (2) in paragraph (18)(B)— (A) by indenting appropriately; and (B) by inserting (including a distributed energy resource in any State in which a State regulatory authority or nonregulated electric utility determines not to establish standards in accordance with paragraph (20) of section 111(d) of the Public Utility Regulatory Policies Act of 1978 ( 16 U.S.C. 2621(d) )) before that the Commission determines . (b) Improved interconnection standards for distributed energy resources Section 111(d) of the Public Utility Regulatory Policies Act of 1978 ( 16 U.S.C. 2621(d) ) (as amended by section 5) is amended by adding at the end the following: (21) Improved interconnections standards for distributed energy resources Each State regulatory authority or nonregulated electric utility, acting under State authority in a State that has determined not to establish standards under paragraph (20), shall consider— (A) setting rates that exceed the incremental cost of alternative electric energy for purchases from any distributed energy resource (as defined in section 3 of the Federal Power Act ( 16 U.S.C. 796 )) that is a qualifying facility for electricity generated, demand reduced, or service provided by the qualifying facility interconnected under this Act, with— (i) the rates to be established at the full retail rate; and (ii) fixed monthly charges for residential electricity bills to be established at a charge of not more than 10 dollars per month, with optional reevaluations of the amount of charge to be considered on a periodic basis; (B) making any distributed energy resource project exempt from filing requirements with the Commission; (C) ensuring that any requirements considered under this paragraph would not affect the purchase obligation under section 210 for distributed energy resource facilities; and (D) requiring that all rates and fees for interconnection of distributed generation facilities— (i) shall be just and reasonable; (ii) shall provide for the benefit of the distributed energy resource to the electricity grid and benefit of the electricity grid to the distributed energy resource; and (iii) not exceed the actual cost of service. . 7. Designation of smart grid coordinator or distribution system operator Section 111(d) of the Public Utility Regulatory Policies Act of 1978 ( 16 U.S.C. 2621(d) ) (as amended by section 6(b)) is amended by adding at the end the following: (22) Designation of smart grid coordinator or distribution system operator Each State regulatory authority shall consider designating, through a competitive process, a regulated utility, other party, or a combination of regulated utilities and other parties to be a smart grid coordinator or distribution system operator for the State. . 8. 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 7) is amended by adding at the end the following: (23) Nontransmission alternatives (A) In general Each State regulatory authority shall consider nontransmission alternatives in instances in which a regulated utility proposes transmission projects. (B) Cost To reduce the cost to the ratepayer of a potential transmission upgrade, a nontransmission alternative considered under subparagraph (A), shall receive the avoided cost of the transmission upgrade, minus a reasonable discount, as determined by the State regulatory authority. (C) Recovery If a nontransmission alternative proposed under subparagraph (A) obviates the need for a reliability-based transmission upgrade, the cost of the nontransmission alternative shall be recovered from the ratebase in the same manner as the transmission upgrade would have been. . 9. Compliance (a) Time limitations Section 112(b) of the Public Utility Regulatory Policies Act of 1978 ( 16 U.S.C. 2622(b) ) is amended by adding at the end the following: (7) (A) Not later than 1 year after the date of enactment of this paragraph, each State regulatory authority (with respect to each electric utility for which the authority has ratemaking authority) and each nonregulated utility shall, with respect to the standards established by paragraphs (20), (22), and (23) of section 111(d)— (i) commence the consideration required under those paragraphs; or (ii) set a hearing date for the consideration. (B) Not later than 2 years after the date of enactment of this paragraph, each State regulatory authority (with respect to each electric utility for which the authority has ratemaking authority) and each nonregulated electric utility, shall, with respect to the standards established by paragraphs (20), (22), and (23) of section 111(d)— (i) complete the consideration under subparagraph (A); and (ii) make the determination referred to in section 111 with respect to the standards established by those paragraphs. (8) (A) Not later than 2 years after the date of enactment of this paragraph, each State regulatory authority (with respect to each electric utility for which the authority has ratemaking authority) and each nonregulated utility shall, with respect to the standards established by section 111(d)(21)— (i) commence the consideration required under that paragraph; or (ii) set a hearing date for the consideration. (B) Not later than 3 years after the date of enactment of this paragraph, each State regulatory authority (with respect to each electric utility for which the authority has ratemaking authority) and each nonregulated electric utility, shall, with respect to the standards established by section 111(d)(21)— (i) complete the consideration required under that paragraph; and (ii) make the determination referred to in section 111 with respect to the standards established by section 111(d)(21). . (b) Failure To comply Section 112(c) of the Public Utility Regulatory Policies Act of 1978 ( 16 U.S.C. 2622(c) ) is amended by adding at the end the following: (1) In the case of the standards established by paragraphs (20) through (23) 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. . (c) Prior state actions (1) 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) through (23) 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. . (2) 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) through (23) 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. . 10. Effect of Act 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.