Technology giant Oracle is locked in a dispute with Wisconsin state authorities over collateral requirements for a major data centre project, arguing it is being unfairly required to obtain a multi-billion dollar letter of credit.
The row relates to Oracle’s US$15bn Lighthouse Campus project in Port Washington, Wisconsin, a near-1GW data centre complex being developed in partnership with Vantage and OpenAI.
Large data centre projects typically require developers to provide their electricity suppliers with some form of credit protection in the event of default, such as a parent company guarantee for highly rated companies, or letters of credit for those rated below a certain threshold.
Wisconsin’s We Energies, which will supply energy to the Oracle facility, had initially proposed that the company be allowed to provide only a guarantee because it holds an investment-grade BBB credit rating from Fitch.
But the Public Service Commission of Wisconsin, an independent regulatory agency, announced in May that option would only be available to companies rated A- or above.
Julia Robin, Oracle’s vice-president of infrastructure capacity and sourcing, said in a June 10 court filing that the Commission’s decision would require it to provide collateral totalling billions of dollars, “almost certainly” in the form of a letter of credit to avoid tying up liquidity in a cash deposit.
“It is unlikely that a single bank or financial institution would be willing to provide a letter of credit in the amount required under the tariffs,” she said. “The customer would likely need to work with a consortium of institutions to collectively post the required security.”
Premiums paid to banks for such a facility “could easily exceed US$100mn” per year, she said.
“The cost of this undertaking would be significant and disproportionate to the risk it is intended to mitigate,” Robin said.
The Oracle vice-president also argued this requirement would prove “highly problematic” for other large companies, estimating there are “only a handful of companies in the world” that would be exempt from the tougher collateral rules.
“The Commission’s decision imposes one of the most stringent – if not the most stringent – credit support requirements I have seen,” she said.
Robin’s comments supported a joint petition filed by Oracle and WE Energies requesting that the Commission reopens its case.
Meanwhile, Oracle has also filed a judicial review against the Commission in the Ozaukee County Circuit Court, arguing in a June 19 petition that the Commission’s decision lacked both “substantial evidence” and “a rational basis”.
Oracle “has already invested billions of dollars” in the project after relying on the initial financial requirements proposed by We Energies, the lawsuit added.
Dispute deepens
The Commission has yet to file a response to the judicial review petition as of press time.
However, it said in an April statement that the decision followed a “thorough, year-long review” of We Energies’ application. Throughout that process, organisations and members of the public “raised concerns about aspects of the utility’s application and how it could impact existing customers”.
Commissioner Kristy Nieto said at the time: “We need to do everything within our jurisdiction to make sure data center customers will pay their own way, fully and transparently, and other customers will be held harmless.”
The Citizens Utility Board of Wisconsin, which advocates for affordable utility rates, argued in favour of the Commission’s decision in a June 17 court filing.
It said that if a data centre defaulted on payments owed to its electricity provider, and if no collateral requirement was in place, that provider would have no recourse other than to its other customers.
Oracle’s Robin argued that a scenario where an investment-grade company “could default at any minute” and leave no residual value in its infrastructure is unrealistic.
She pointed out that Oracle also has strong access to financing facilities, including a US$10bn credit line provided by a syndicate of banks such as Bank of America and JP Morgan, which was issued without requiring collateral support.
This “reflect[s] the willingness of sophisticated market participants to lend to Oracle based solely on its creditworthiness”, she said.
But Steven Kihm, chief economist at the Citizens Utility Board, argued that We Energies is far smaller than those banks and does not share their expertise in assessing technology companies’ credit risk.
Non-profit organisation Clean Wisconsin has also backed the Commission’s decision, arguing it protects other customers such as families and small businesses “from the risks associated with these enormous energy users”.
“We Energies… and Oracle want to lower the collateral required because Oracle may have trouble meeting those requirements,” said organisation attorney Brett Korte. “This shows the high risks that providing utility service to Oracle entails, and it’s exactly why the protections adopted by the Commission are necessary.”
Additional reporting by Jacob Atkins.
