On May 6, 2015, Sen. Angus King (I-ME) released a discussion draft of the Free Market Energy Act of 2015 (the “Act”), a bill that would radically change the landscape for distributed energy resources (DERs) – small-scale renewable generation, energy storage and demand response, among others – by establishing a set of parameters for the governance of DERs at the state level.  In effect, as Sen. King says in a press release accompanying the Act, the parameters would “protect the right of people to connect their technology to the grid, ensure that grid-owners and operators receive their due compensation, and support the continued development of energy resources.”

At its core, the Act would amend the Public Utility Regulatory Policies Act of 1978 (PURPA) to direct states to “consider just and reasonable rates for DERs” through the unbundling of rates by taking into account a DER’s time-of-use pricing, locational value, capacity, peak monthly demand, and societal value, among other factors.  However, if a state chooses not to implement unbundled rates, the Act would amend PURPA so that DERs in those states would be treated as Qualifying Facilities (QFs).  In receiving QF status, a utility would be required to purchase the excess output of the DER at the utility’s full retail electricity rate, or net energy metering.  The Act anticipates that costs associated with the integration of DERs and net metering may force utilities to impose monthly fees on its customers, and, thus, caps any such fee at $10 a month. Other benefits of a DER receiving QF status under the Act could include the following, based on a unit’s generation type and size: (i) guaranteed interconnection to the grid, (ii) exemption from the Public Utility Holding Company Act of 2005 and (iii) an exemption from certain Federal Energy Regulatory Commission filing requirements.

The Act would further amend PURPA by directing states to designate “smart grid coordinators” or “distribution system operators” – a regulated utility, other party or combination of the two – to manage DERs, and for state regulatory authorities to consider nontransmission alternatives when a transmission upgrade is proposed. To reduce ratepayer costs of potential transmission upgrades, the Act would allow nontransmission alternatives to “receive the avoided cost of the transmission upgrade, minus a reasonable discount, as determined by the State regulatory authority.” Also, if the non-transmission alternative alleviates the need for a reliability-based transmission upgrade, its cost can be recovered in the rate base.

In support of the Act, Sen. King highlights various concerns in background and fact sheets, such as expensive grid-connection fees and “simplistic” net metering formulas that “do not properly compensate grid owners,” thus discouraging “consumers from pursuing newer technologies.”  Instead, Sen. King states, “[e]lectricity rate structures must account for the value of the grid and the value of DER and send rational and more sophisticated price signals to the market.”

If passed, the Act would enhance the groundwork already laid for DERs in states such as California, New York and Massachusetts, and it could encourage further investment in DERs. The Act is presently under review by the Senate Committee on Energy and Natural Resources.