Oracle Drops Lawsuit Opposing Wisconsin Data Center Credit Rules

Aerial rendering of Port Washington data center complex. Source: City of Port Washington

Oracle moved to voluntarily drop its lawsuit against Wisconsin’s utility regulator on Monday, nearly two months after the tech giant turned to the Ozaukee County Circuit Court to challenge new credit rating requirements for data center developers in eastern Wisconsin.

With the case put to rest, the credit rating rules — intended to shield other Wisconsin ratepayers from fallout in the event a data center developer goes bust — now stand unchallenged. Oracle previously argued the requirements were overly stringent and could dissuade other companies from setting up operations in Wisconsin.

Oracle’s share price has begun to rebound after a collapse that began in early June and continued for weeks after the company sued Wisconsin’s Public Service Commission (PSC). Its credit rating, however, remains well below the threshold at which it could avoid posting hundreds of millions of dollars in collateral as a condition of buying electricity for the Port Washington data center.

Vast power needs for data center

The Nashville-based cloud computing firm is a co-developer of the data center campus in Port Washington. The trio behind the project — Oracle, OpenAI and data center developer Vantage — expect the facility to require 1.3 gigawatts of electrical generation capacity in its first phase, or enough to power roughly a million Wisconsin homes.We Energies, Wisconsin’s largest investor-owned utility, must meet the campus’ energy needs by a tentative late-2027 deadline.

The Port Washington facility’s energy needs are so vast — an order of magnitude greater than the Saukville steel mill that was, until recently, Wisconsin’s largest electricity user —  that state rules require it to buy its electricity under a specialized rate structure.

The PSC approved that rate structure for We Energies’ largest data center customers in May. Among other rules, the commission’s order requires the facilities’ operators to pay for the construction of new power plants needed to meet their energy needs.

But constructing a new plant can cost hundreds of millions of dollars, and any unpaid debts tied to the plants could fall on We Energies’ other customers if a data center operator becomes insolvent. To shield ratepayers from a potential cost shift, the PSC set an A- credit rating threshold for data center operators seeking electric service from We Energies. Companies below the threshold must post steep collateral, either in cash or lines of credit.That requirement could cost Oracle over $100 million per year in financial security payments. The company held a BBB credit rating when the PSC approved the credit rating standards, largely because of its aggressive borrowing to finance artificial intelligence ventures and its business relationship with OpenAI.

S&P Global Ratings, one of the “Big Three” credit rating agencies responsible for assessing creditworthiness of government and corporate debt, lowered Oracle’s rating to a BBB- on July 9 — the bottom edge of the agency’s “investment-grade” tier.

PSC declines to reopen case

We Energies asked the PSC to reconsider the rule in June, arguing that the added cost could dissuade other companies from operating in Wisconsin. The PSC declined the request last month, and We Energies CEO Scott Lauber reassured investors on a recent quarterly earnings call that the credit requirements pose no threat to the Port Washington project’s viability.Oracle, however, sued the commission in Ozaukee County Circuit Court as a backup to the reopener request. The company’s June lawsuit asked Judge Sandy Williams to “set aside, reverse, and remand” the credit rating requirements, arguing that they aren’t “needed to prevent harm” to We Energies’ other customers or shareholders.The commission responded last month, accusing Oracle of trying to dodge regulatory scrutiny by seeking “to overturn over one-hundred years of established caselaw” and “dictate one-off preferential terms of service” with We Energies.

Questions remain for data center developers

Oracle’s attorneys filed a motion to voluntarily dismiss the lawsuit early on Monday morning.Ratepayer advocates who supported the credit rating requirements celebrated the end of the lawsuit.

“We were confident the PSC would win and that the consumer protection safeguards the CUB team sought would remain in place,” said Tom Content, executive director of Wisconsin’s Citizens Utility Board.

“CUB believes the safeguards the PSC established are critical to protect We Energies customers from the risks of tech companies overextending their borrowing, calling into question the long-run solvency of those companies.”

“This is an important win for Wisconsin since these safeguards — which We Energies claims would  ‘narrow the pool of investors’ for AI data center projects — could be used as a blueprint in other parts of the state,” said Clean Wisconsin spokesperson Amy Barrilleaux. The end of one legal fight doesn’t guarantee smooth sailing for the Port Washington project. The PSC voted last week to require the American Transmission Company (ATC) — the transmission utility responsible for connecting the data center to the grid — to restart the six-month application process to build the requisite transmission lines and substations, citing a series of design changes the utility made after the commission began reviewing its proposal.Though the redo will leave ATC little time to meet its December 2027 deadline to plug in the Port Washington data center, the company has yet to announce changes to its timeline.

Meanwhile, data center developer Cloverleaf Infrastructure signaled that it is considering developing facilities in Madison Gas and Electric’s territory. The utility, which serves the core of the Madison metropolitan area, is awaiting the PSC’s input on its own data center rate structure.

MGE’s proposal would also require developers with credit ratings below A- to post collateral, with lower collateral requirements for companies rated BBB+ than for those with BBB ratings or below.

This article first appeared on Wisconsin Watch and is republished here under a Creative Commons Attribution-NoDerivatives 4.0 International License.