I would have your DS try to do some 2nd-3rd grade reading skills work books. Harcourt makes some good ones.
If you son can acurately do the comprehension, context clues, and vocabulary lessons, than I think you should push for, at the very least, a subject reading skip. Take in the work books and show them what he can do.
In some classrooms reading at a 3rd grade level during Kindy is common, in some it is unusual, and in some it's unheard of - sort of depends where you live.
It also depends on which type of assesment your shool uses. Some use schools use "frequent word list" while others use vocab/comprehension for assesment. I would inquire as to what method they use to asses reading level and get his percentile if possible.
