After being downgraded by Standard & Poor's, Oracle Corporation (ORCL.US) faces another regulatory blow! It may need to pay a $7 billion bond for the Wisconsin data center.

After the power regulatory agency in Wisconsin, United States tightened credit requirements to protect residents from the impact of rising electricity prices, Oracle Corporation (ORCL.US) may need to provide over $7 billion in mortgage guarantees for its large data center located in Wisconsin. It is reported that the Wisconsin Public Service Commission, responsible for reviewing and setting utility company tariff standards in the state, refused to reconsider the regulations imposed on local utility company We Energies. According to the regulations, Oracle Corporation needs to provide a guarantee valued at $7 billion, with an annual cost exceeding $100 million. This data center, located in Washington Harbor, Wisconsin, with a capacity of nearly 1 gigawatt (GW), is a key investment for Oracle Corporation to fulfill its $300 billion computing supply contract with OpenAI. The increased costs for local power supply have further exacerbated challenges faced by this tech giant in advancing its AI strategy, including increasing debt and faster cash consumption. The pricing scheme set by We Energies for "very large customers" stipulates that any data center developer rated below A- by T. Rowe Price Group must provide mortgage guarantees in the form of cash or letters of credit. The amount of the mortgage is determined based on the value of the power plants and transmission lines built for the data center. At that time, Oracle Corporation's credit rating was BBB, two grades lower than the threshold mentioned above. Last month, Oracle Corporation requested a local court judge to overturn this regulation and allow We Energies to exempt it from the mortgage guarantee requirement. The company stated that this regulation might "force Oracle Corporation to bear heavy financing costs and may dampen future investment intentions in Wisconsin. A representative of the regulatory agency stated to the media on Monday that the commission "has decided not to take action on the petition." Oracle Corporation expressed hope that the commission could reconsider its position after fully considering the job opportunities and economic growth the $15 billion project would create. Oracle Corporation stated that the company is still "committed to providing the necessary financial guarantees to ensure that Wisconsin electricity users do not bear any risks." Originally, We Energies proposed to exempt companies with credit ratings of BBB and above from stricter credit requirements. However, in May of this year, regulatory agencies intervened and further tightened credit rating standards. The regulatory agency stated, "The design of the pricing scheme should ensure that existing electricity users in Wisconsin will not subsidize data centers in the present or future." This decision signifies an initial setback for Oracle Corporation, and it is expected that the company will continue to challenge this regulation through legal means. This event also highlights the growing concerns of state regulatory agencies that without strong financial support, future large-scale AI infrastructure projects may end up as stranded assets. With increasing concerns that the costs of building new power plants and transmission lines for data centers will ultimately be passed on to average electricity users, 24 states in the United States have approved the implementation of "large load tariffs", specifically regulating the charging standards and related terms for data centers and other large industrial users. These pricing schemes typically require data centers to commit to minimum contract lengths, pay early termination fees, and provide mortgage guarantees. Large tech companies and manufacturing businesses argue that these pricing schemes are discriminatory and impose excessive costs on businesses. Apart from the large data center project in Wisconsin, Oracle Corporation's $16.5 billion AI supercluster project in New Mexico has also encountered environmental approval obstacles, forcing a switch in power supply schemes and leading to sudden cost increases of billions of dollars. Originally, Oracle Corporation planned to build a natural gas power plant for its Project Jupiter data center complex. The project, located near El Paso, Texas, on 1,400 acres in southern New Mexico, with a capacity exceeding 2 GW, primarily serves OpenAI's computing needs. However, the state environmental permit application for the natural gas power plant stalled due to air pollution and greenhouse gas emission issues. In April of this year, Oracle Corporation instead planned to utilize Bloom Energy (BE.US) natural gas fuel cells to power the entire complex. Fuel cells have lower pollutant emissions, slightly lower carbon emissions, and almost no water consumption, theoretically offering advantages in environmental approvals. But the switch came at a hefty cost. Analysts estimate that the modified fuel cell microgrid with a capacity of 2.45 GW would cost about $8 billion, tens of billions more than the original natural gas turbine plan. Furthermore, if the fuel cells do not run continuously, it will accelerate aging, limiting Oracle Corporation's flexibility to switch to cheap CECEP Solar Energy during sunny periods. Environmental resistance has not dissipated. The state of New Mexico last week issued a second veto of the proposed fuel pipeline route, announced a public hearing on October 19 for an air permit, citing "significant opposition." The New Mexico Attorney General is investigating complaints from residents whose names were used without consent in support letters submitted to regulatory agencies. Local media pointed out that the greenhouse gas emissions from just the fuel cell at the facility exceed the combined reported emissions of the state's two largest cities. A spokesperson for Oracle Corporation stated in a press release that the company is quickly advancing on AI site construction and is confident in the return on the deployed capital. Julia Robin, Oracle Corporation's infrastructure planning and procurement manager, published an open letter in a local newspaper, stating that the adjustments made by the company show that "we are listening and continuously improving the project." At the same time, concerns about Oracle Corporation's credit status have worsened this month. S&P downgraded the company's credit rating to BBB-, just one grade above junk status, citing significant uncertainties in the company's profit prospects amid massive investments in AI. The deteriorating credit status of Oracle Corporation may also affect the hundreds of billions in construction loans provided by Wall Street banks for its data center projects. Prior reports indicated that as the demand for data center financing increased, lending institutions have been exploring new ways to transfer risks associated with large data center loans. Concerns about Oracle Corporation's credit status are not only reflected in its stock price but also in the credit markets. Oracle Corporation's 5-year credit default swap (CDS) rose to approximately 2.03 basis points in early trading on Monday, surpassing the record of 198.23 basis points set the previous trading day, setting a new historical high since the end of 2008. As of the end of the 2026 fiscal year, Oracle Corporation's unfulfilled contract obligations reached $638 billion, a 363% increase year-over-year. Most of these contracts are related to AI cloud computing, meaning that customers have reserved computing power for the coming years. However, it is worth noting that of the $638 billion contract balance, only 12% of the projected revenue for the next 12 months is confirmed. In the 2026 fiscal year, Oracle Corporation's operating cash flow reached $32 billion, while capital expenditures amounted to $55.7 billion, resulting in negative free cash flow of $23.7 billion. Capital expenditures in the 2027 fiscal year could potentially rise to $95 billion, and the company plans to raise nearly $40 billion through debt and equity financing. AI data centers require the pre-purchase of GPUs, land leasing, access to power, and building data centers. Customers may not complete payments for several years, while capital expenditures occur today. As orders grow, revenue realization takes time. Oracle Corporation must first establish an AI world for customers with its own balance sheet. Although Oracle Corporation has requested some customers to prepay for GPU purchases or directly provide GPUs - involving about $75 billion - this can reduce some construction costs but cannot eliminate the funding gap.