Overall Vote Recommendation

Vote No; Amend

Principle Criteria

Free Enterprise

Property Rights

Personal Responsibility

Limited Government

Individual Liberty

Digest

SB 388 modifies Section 39.9044 of the Texas Utilities Code to establish new state goals for electric generation capacity in the ERCOT power region. The bill mandates that 50% of all new electricity generation capacity installed after January 1, 2026, must come from dispatchable sources—energy generation that can be turned on or off as needed, such as natural gas, nuclear, or battery storage. This replaces the prior statute's preference for natural gas as the primary dispatchable resource.

To enforce this requirement, SB 388 directs the Public Utility Commission (PUC) to establish a dispatchable generation credit trading program. Under this system, power generators, municipal utilities, and electric cooperatives that do not directly own or contract dispatchable capacity must purchase credits to comply with the mandate. The commission is also required to set annual dispatchable generation targets and create performance standards for qualifying capacity.

The committee substitute for SB 388 retains the core objective of the originally filed bill—requiring that 50% of new electricity generation capacity in ERCOT after January 1, 2026, come from dispatchable sources. However, it makes several key modifications that broaden compliance options and adjust regulatory mechanisms.

One of the most significant changes is the expansion of the definition of dispatchable generation. The originally filed bill limited dispatchable generation to natural gas-powered sources, whereas the committee substitute removed this restriction, allowing for any technology that can reliably provide on-demand electricity, including battery storage, nuclear power, and other non-intermittent sources. Similarly, the dispatchable generation credit trading program has been modified to apply to all dispatchable sources instead of exclusively benefiting natural gas projects.

Another notable change is the immediate activation of the credit trading program. The original bill only required the program if dispatchable generation fell below 55% of new capacity, whereas the substitute removes this threshold, ensuring that compliance mechanisms are in place from the outset. Additionally, the committee substitute eliminates specific incentives for natural gas development, instead directing the Public Utility Commission (PUC) to set general performance standards for all dispatchable energy projects.

Finally, while both versions require ERCOT to track compliance and report annually, the committee substitute streamlines the credit retirement process to reduce administrative complexity. These changes make SB 388 more technology-neutral and adaptable to a broader range of energy solutions while still enforcing the state’s mandate for dispatchable generation.

Author

Phil King

Co-Author

Paul Bettencourt

Lois Kolkhorst

Contact the Author

Sen. Phil King

Capitol Phone:

(512) 463-0110

Capitol Office:

CAP GE.5

E-Mail:

[email protected]

Visit Official Website

Fiscal Notes

The fiscal implications of SB 388 are minimal at the state level, according to the Legislative Budget Board (LBB) analysis. The LBB determined that no significant fiscal impact to the state is anticipated, and any administrative costs associated with implementing the bill could be absorbed using existing resources within the Public Utility Commission (PUC) and other relevant agencies.

However, local government entities, particularly municipally owned utilities, and electric cooperatives, may experience financial impacts. The bill requires participation in a dispatchable generation credit trading program, which could increase compliance costs for utilities that do not already meet the dispatchable generation requirements. These entities may need to purchase credits or invest in new generation capacity, potentially leading to higher operational costs that could be passed down to ratepayers in affected municipalities.

Overall, while SB 388 does not impose a direct financial burden on the state, the cost implications for local utilities and electricity providers remain uncertain. If the credit trading market results in high compliance costs, electricity prices could rise, affecting residential and commercial consumers.

Vote Recommendation Notes

SB 388 represents a fundamentally flawed approach to addressing Texas' energy reliability challenges. While its stated goal—to ensure 50% of new electricity generation comes from dispatchable sources—is rooted in legitimate concerns about grid stability, the proposed credit trading system creates a new subsidy for dispatchable generation, adding more market distortions without addressing the underlying issues in Texas’ energy market. Instead of allowing free-market competition to determine the best energy mix, the bill picks winners and losers by mandating an artificial share of dispatchable energy while ignoring the root cause of the problem: federal and state renewable energy subsidies.

This bill builds on a failed policy model. Since 2000, Texas had a renewable energy credit (REC) trading program, which was eliminated last session because it distorted the market and was no longer needed. Likewise, the 2000 requirement that 50% of all new generation come from natural gas was never enforced and proved meaningless. Now, SB 388 replaces natural gas with dispatchable generation and adds an enforcement mechanism—the credit trading system—which only creates another costly subsidy program. This approach fails to recognize that dispatchable generation is already receiving billions of dollars annually in state and federal subsidies, further skewing the market and placing additional financial burdens on ratepayers.

Instead of trying to out-subsidize the federal government’s massive renewable energy incentives, the Texas Legislature should focus on eliminating state-level renewable subsidies and forcing renewable generators to bear the full costs of the reliability issues they create. Right now, renewable energy producers benefit from subsidies and favorable market rules that shift reliability costs onto other generators and consumers. If Texas wants a truly competitive and reliable electricity market, the solution is not more subsidies for dispatchable energy, but rather ending the unfair advantages given to renewables.

While SB 388 in its current form is a bad policy, amendments could improve it:

End all state-level renewable energy subsidies instead of trying to counteract them with dispatchable energy subsidies.
Require renewable energy generators to pay for the reliability costs they impose on the grid, ensuring all energy sources compete on a level playing field.
Remove the credit trading system, which adds unnecessary bureaucracy and costs rather than solving the root issue.

SB 388 is a misguided attempt to fix a problem that requires a different solution. Instead of subsidizing dispatchable energy to compensate for the market distortions caused by renewable subsidies, Texas should eliminate renewable energy handouts and force generators to bear their true costs. As such, Texas Policy Research recommends that lawmakers vote NO as the best course of action unless major amendments are made to shift the focus from more subsidies to actual free-market reforms.

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