Oracle’s $15B AI data center hits roadblock as Wisconsin rejects rule change

Oracle’s plans for a $15 billion artificial intelligence data center in Wisconsin have encountered a major setback. This comes after state regulators refused to ease credit requirements that could force the technology giant to provide more than $7 billion in financial collateral.

Regulators said the rules are intended to protect electricity customers from bearing the costs of expensive AI-related grid expansion.

The Public Service Commission (PSC) of Wisconsin declined to revisit rules requiring utilities to obtain stronger financial guarantees from large electricity users before connecting them to the grid. The decision affects Oracle’s nearly one-gigawatt data center in Port Washington, one of the company’s flagship AI infrastructure projects.

The project is expected to support Oracle in its long-term AI expansion and cloud computing commitments tied to OpenAI. But under We Energies’ “very large customer” tariff, companies with an S&P credit rating below A- must provide collateral, often cash or a letter of credit, to cover the cost of new power plants and transmission infrastructure built specifically for their facilities.

Public Service Commission told reporters Monday that it would not act on the application, maintaining that the rule that ensures locals don’t inherit the financial risks of the data center infrastructure.

Nonetheless, Oracle still expects regulators to reconsider after taking into account the massive job creation and economic boost tied to the $15 billion development. The tech giant even reiterated its promise to provide the necessary financial assurances, ensuring Wisconsin consumers are completely insulated from risk. 

Oracle’s lower credit rating raises collateral burden

The Port Washington facility, designed to pull nearly a gigawatt of power, represents a vital step in Oracle meeting its $300 billion computing obligations to OpenAI. While Oracle is sharing the development load with two other partners, the new steep utility costs further complicate its AI push.

According to We Energies’ tariff guidelines, data center developers without at least an S&P A- rating are legally mandated to secure their projects with cash or letters of credit. Primarily, the collateral obligation scales with the capital expenditure required for the power generation and transmission assets dedicated to the data center. 

On July 9, S&P Global Ratings downgraded Oracle to BBB-, placing the company two notches below the A- credit rating required under We Energies’ tariff. BBB- is the lowest investment-grade rating and indicates that a company has adequate capacity to meet its financial obligations, although it is more vulnerable to adverse economic conditions than higher-rated issuers. The downgrade means Oracle no longer meets the tariff’s minimum credit threshold, increasing the likelihood that it will have to provide billions of dollars in collateral.

In a July 10 court filing, Julia Robin, Oracle’s vice-president of infrastructure capacity, explained that they would have to provide collateral “almost certainly” in the form of a letter of credit, instead of cash. However, she argued that a single bank is unlikely to issue a letter of credit for such a large amount. Thus, companies facing these financial requirements would likely rely on a group of financial institutions to meet the security obligation. She added, however, “The cost of this undertaking would be significant and disproportionate to the risk it is intended to mitigate.” 

She also noted that the costs would be tough to meet by other large firms. “The Commission’s decision imposes one of the most stringent – if not the most stringent – credit support requirements I have seen,” she said. 

The firm is still pursuing a judicial review against the Commission in the Ozaukee County Circuit Court. In the June 19 filing, Oracle claimed the Commission’s decision was both unsupported by substantial evidence and irrational. It also said the company had already invested billions of dollars in the project after following We Energies’ initial financial framework. 

S&P admits it did not consider the effect of its rating on Oracle

Speaking on the new rating and its impact on Oracle, S&P analysts acknowledged that it had undervalued the sheer volume of cash required for the AI buildout and how that it would damage the company’s overall credit profile. Nevertheless, they remain optimistic about Oracle’s ability to optimize its cost structure and raise the necessary capital to scale its operations over the next few years.

An Oracle spokesperson also said the firm hopes to retain an investment-grade credit rating. 

This far, some have defended the Commission’s position. Earlier, The Citizens Utility Board noted that the increased financial security requirement was reasonable. It argued that regulators in Ohio and Indiana have the same tariff guidelines and rating requirements.

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