We got the same thing in 1st/2nd grade. It was frustrating as my DD needed a push to attempt something a little longer. She was hooked on "fairies" and she could read those books so quickly...The reason I was given was so they could get "confidence" reading out loud. Very frustrating when she could read most of the newspaper. I ended up signing the reading log and telling her to read silently in case she got quizzed and then just read something else. The outloud reading got old. This is part of the reason I left DD6 at the montessori another year. This all seemed to get a little better by 3rd grade in our Public schools. No more 6 weeks of assessing DRA levels, etc.
