Credit rating downgrades combined with tightening U.S. regulations are driving up the costs for Oracle's AI infrastructure development.
Oracle's major data center project in Wisconsin, USA, is facing a significant funding obstacle. The state's public utilities commission has upheld credit security requirements for the local utility, potentially forcing Oracle to provide over $7 billion in guarantees. This decision adds to the financial strain on the tech giant as it builds out its AI infrastructure.
On Monday, July 20, the Public Service Commission of Wisconsin informed the Financial Times that it had "denied a request for action," thereby maintaining the credit collateral rules for the utility We Energies. These rules require Oracle to provide approximately $7 billion in guarantees, either in cash or letters of credit, incurring over $100 million in additional annual costs. Oracle stated it hopes the commission will reconsider its position after fully weighing the job creation and economic growth from this $15 billion project. The company affirmed it remains "committed to providing the necessary financial assurances to ensure Wisconsin ratepayers bear no risk."
This data center is a crucial component for Oracle to fulfill a $300 billion computing power contract with OpenAI, representing a total investment of $15 billion.
The commission's ruling represents an initial setback for Oracle. Concurrently, S&P Global Ratings downgraded Oracle's credit rating to BBB- this month, just one notch above junk status, citing uncertain profitability prospects due to its heavy investments in AI. The deteriorating credit profile could also impact the hundreds of billions of dollars in construction debt Wall Street banks are underwriting for its data centers, further elevating overall financing risks.
Oracle Pursues Legal Recourse
Facing this regulatory hurdle, Oracle filed a lawsuit in a county court last month seeking to overturn the requirement and to allow We Energies an exemption. In its filing, Oracle argued the rule "threatens to impose crushing financing costs on Oracle and could deter future investment in Wisconsin."
The regulatory body's denial means Oracle's legal battle will continue. Analysts note this case also reflects growing vigilance among state regulators that large-scale AI infrastructure projects could become "stranded assets," especially if they lack sufficient financial backing.
Credit Deterioration Impacts Financing
S&P's downgrade this month placed Oracle at BBB-, perilously close to speculative grade. The rating agency cited increased uncertainty in Oracle's profit trajectory due to its substantial AI investments as a primary reason for the move.
The implications of the credit downgrade extend further. According to a previous Financial Times report, Wall Street banks providing hundreds of billions in construction loans for Oracle's data centers are already exploring new ways to offload risks associated with the massive data center lending. A further slide in its credit rating would undoubtedly increase the difficulty and cost of such financing arrangements.
Nationwide Regulatory Trend Tightens
The situation in Wisconsin is not an isolated case but part of a broader regulatory trend across the United States. Amid growing concerns that electricity ratepayers could ultimately foot the bill for power infrastructure supporting data centers, 24 states have now approved "large customer tariff clauses." These clauses set pricing and access conditions for data centers and other major industrial users.
Such provisions typically require data centers to commit to minimum contract terms, pay exit fees, and provide collateral guarantees. Major tech companies and manufacturers have challenged these clauses, arguing they are discriminatory and impose excessive costs.
Oracle's challenges in Wisconsin signal that, behind the massive expansion of AI data centers, negotiations with local regulators will become a significant variable in the race for computing power.
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