PSC fires back in rate rule fight with Oracle

The Wisconsin Public Service Commission has filed a scathing rebuke of Oracle’s challenge of a rule that requires the operators of large-scale electrical users such as the Vantage Data Centers Lighthouse Campus it is building on Port Washington’s north side to meet financial security and credit standards.

In a July 9 filing in Ozaukee County Circuit Court, the PSC reiterated that the standards are needed to ensure the proposed rate structure for large electrical users are “just and reasonable and did not subject non-participating customers ... to harm or increased risk.”

It asks that the court dismiss a lawsuit filed June 19 by Oracle America Cloud Services LLC, a subsidiary of Oracle Corp., and affirm the PSC’s decision regarding the so-called “very large customer tariff and bespoke resource tariff.”

Oracle, which along with OpenAI would occupy the Port data center, claims that the requirements aren’t based on substantial evidence, but the PSC said in its response that this is a “red herring.”

“This is inaccurate and obfuscates the true nature of the petitioner’s complaint, which is that it wants its dealings with Wisconsin Electric Power Co. exempted from commission scrutiny all together,” according to the response.

The company is asking the court “to overturn over 100 years of established case law and allow it to dictate one-off preferential terms of service with the utility,” the PSC response states.

Oracle’s goal, according to the PSC, is to allow We Energies to waive the standards without PSC oversight because the company does not meet the requirements for the “very large customer tariff and bespoke resource tariff.”

These customers are defined as using 100 megawatts or more of power, the PSC response says, noting that this is the equivalent of the power used by all residents of Ozaukee County.

At issue is a PSC requirement that companies whose credit rating does not meet the PSC standard of at least A- must post guarantees that Oracle said could exceed $100 million annually.

The PSC has said these financial guarantees are needed to reduce the risk of companies shifting costs if they run into financial trouble.

Oracle’s credit rating was BBB when it filed its lawsuit in June, and it has since fallen to BBB-.

That rating is still considered investment grade, but were it to fall below that  ranking it would be considered speculative grade.

According to S&P Global Ratings, Oracle’s rating was downgraded because its artificial intelligence infrastructure business is increasing its overall credit risk as the rating agency takes a more cautious view of the AI infrastructure industry.

“The industry’s rapid capacity expansion is a growing risk,” S&P said. “Near-term demand is strong, but this could reverse if leading frontier model developers are unable to raise external financing or stop subsidizing their customers.”

OpenAI remains a credit risk, the S&P report states, and if it was unable to pay Oracle, Oracle could be left with “massive” data center leases that it might be unable to exit or have to release to new tenants under less-favorable terms.

However, the S&P report states, the outlook for Oracle is stable, reflecting the fact that the company is expected to demonstrate consistent improvements toward profitability as capacity comes on line and business scales.

The Oracle lawsuit has drawn a number of other entities into the dispute.

Wisconsin Electric, which will provide power to the Port data center, originally asked for the new rate structure to ensure that customers that use a significant amount of power would pay for the facilities needed to serve them, including new power generation infrastructure.

The utility has signed on as an intervenor and is supporting the Oracle lawsuit.

Other agencies seeking to become a party to the suit are the Citizens Utility Board and Clean Wisconsin.

“These financial requirements for the largest energy users our state has ever seen are incredibly important,” Clean Wisconsin attorney Brett Korte said in a press release. “This is about protecting We Energies’ other customers — families, small businesses, schools, manufacturers — and shielding them from the risks associated with these enormous energy users.

“Oracle wants to lower the collateral required because the company may have trouble meeting those requirements. 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.”

Oracle’s lawsuit was filed nine days after Wisconsin Electric Power Co., Vantage Data Centers and Cloverleaf Infrastructure petitioned the PSC to reconsider the credit rating requirements, saying some discretion is needed in determining the financial support requirements.

The PSC let the petition expire without taking up the matter again.

Oracle’s lawsuit has been assigned to Ozaukee County Circuit Judge Sandy Williams.