AI data center costs face new uncertainties! With tighter regulations, Oracle may be required to provide over $7 billion in guarantees.

AI data center costs face new uncertainties! With tighter regulations, Oracle may be required to provide over $7 billion in guarantees.

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Credit rating downgrades combined with tightened US regulations have driven Oracle's AI infrastructure construction costs to continuously rise.

Oracle's large data center project in Wisconsin has encountered a major financial obstacle. The state’s power regulator maintained the credit collateral requirements for the local utility company, meaning Oracle may need to provide over $7 billion in guarantees—this ruling further increases the financial pressure on the tech giant for its AI infrastructure construction.

The Public Service Commission of Wisconsin told the UK's Financial Times on Monday, July 20, that it has "declined to take action on the application," and upheld the credit collateral requirement for the local utility, We Energies. This regulation requires Oracle to provide about $7 billion in collateral, either in cash or by letter of credit, with an additional annual cost of over $100 million. Oracle stated it hopes the commission will reconsider its position in light of the $15 billion project’s job opportunities and economic growth, and said it remains "committed to providing the necessary financial guarantees to ensure Wisconsin’s power users bear no risk."

This data center is a critical project for Oracle to fulfill its $300 billion computing power contract with OpenAI, with a total investment of $15 billion.

The ruling delivers an initial setback to Oracle. Meanwhile, S&P this month downgraded Oracle's credit rating to BBB-, just above junk status, citing the company's heavy investments in AI and uncertain profitability. The deterioration in the credit rating may also affect the tens of billions of construction debt underwritten by Wall Street banks for its data center projects, increasing overall financing risk.

Facing regulatory obstacles, Oracle last month filed a lawsuit in a county court seeking to overturn the regulation and requesting an exemption for We Energies. In the lawsuit, Oracle argued that the regulation risks "imposing heavy financing costs on Oracle and may hinder future investment in Wisconsin."

The regulator’s refusal to respond means Oracle’s legal battle will continue. Analysts noted the case also reflects state regulators’ growing vigilance over large-scale AI infrastructure projects becoming "stranded assets"—especially when these projects cannot demonstrate adequate financial backing.

Credit deterioration affects financing chain

S&P’s downgrade this month pushed Oracle’s rating to BBB-, just one step away from speculative grade. The agency cited Oracle’s heavy investment in AI leading to increased uncertainty in its profit trajectory as the main reason for the downgrade.

The impact of the credit rating decline goes further. According to the Financial Times, Wall Street banks providing tens of billions in construction loans for Oracle’s data center have begun exploring new ways to shift the risk associated with massive data center borrowing. Further rating cuts will undoubtedly increase the difficulty and cost of related financing arrangements.

Nationwide tightening regulatory trend

The Wisconsin case is not isolated, but rather a reflection of a broader regulatory trend across the US. As concerns rise about power users ultimately bearing the bill for data center power infrastructure, 24 states have now approved "large user rate clauses" that set pricing and access conditions for data centers and other major industrial users.

Such clauses typically require data centers to commit to minimum contract periods, pay exit fees, and provide collateral. Major tech companies and manufacturers have raised objections, arguing these clauses are discriminatory and impose excessive costs.

The difficulties Oracle faces in Wisconsin suggest that, behind the large-scale expansion of AI data centers, bargaining with local regulators will become an important variable in this race for computing power.

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