The Wisconsin PSC just through a major monkey-wrench into Oracle's plans to build a data center there when it announced that because of its recent downgrade by S&P to BBB-, the roach motel of software companies will have to post a $7,000,000,000.00 bond in order to be hooked into the grid.
It is refreshing to see that a billionaire cannot buy his way into regulatory forbearance somewhere.
Oracle says that it could face more than $100 million a year in financing costs to guarantee the power commitments behind a nearly 1 GW datacenter campus it is developing in Wisconsin with Vantage and OpenAI.
Local regulators have refused to revisit a decision that they say protects existing customers and improves public transparency around the energy-related needs of datacenters.
Oracle's plans to build the Lighthouse Campus datacenter in Port Washington are supported by local utility We Energies. The campus is expected to require nearly a gigawatt of power.
The Public Service Commission (PSC) of Wisconsin, an energy regulator, told the Financial Times it had "declined to take action" on a petition seeking to reopen or overturn its earlier decision.
In April, the PSC considered We Energies' application for Very Large Customer (VLC) and Bespoke Resources Tariff status around the datacenter. Among the modifications to improve the tariff was a revision "to address the risk of transmission cost shifting from dataCenter customers to existing customers."
In an affidavit supporting the joint petition to reopen or rehear the decision, Oracle explained that if the decision was not modified, it would have to post security in a cash deposit or a letter of credit.
"Based on our current projections, we anticipate that, under the current mandated requirements, we will ultimately be required to post financial security, likely in the form of a letter of credit in an amount exceeding $7 billion, at an annual cost that could exceed $100 million," the document said.
To qualify for an exemption, Oracle would have to meet several tests, including maintaining ratings of at least A- from S&P and A3 from Moody's. At the time of the PSC decision, S&P rated Oracle BBB, but downgraded it to BBB- earlier this month.
"We estimate that OpenAI makes up roughly half of the $638 billion in (Oracle's) remaining performance obligations (RPO)," S&P said. "OpenAI's ability to meet its contractual obligations and raise external financing will be contingent upon AI tailwinds continuing and its models being market leaders. If OpenAI were unable to pay Oracle, we believe Oracle could be left with massive datacenter leases that it might be unable to exit or have to re-lease to new tenants under less-favorable terms."………
In September last year, Oracle's valuation rocketed after it boasted $455 billion in RPOs, $300 billion of which turned out to be for OpenAI.
In the period since, Oracle has raised debt to fund its datacenter building program and has negative free cash flow.
S&P said Oracle's capex guidance had risen to between $90 billion and $95 billion for fiscal 2027, which started in June, up from an earlier forecast of $60 billion. For the same period, S&P forecasts negative free operating cash flow of $42 billion, worse than its previous estimate of negative $24 billion.
Yes, this does remind me of early 2008. We are seeing signs of the credit markets slowly freezing up.
It's only going to get worse.
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