IV. Parties' Positions

A. PG&E and the Settling Parties

PG&E and the settling parties believe that the package of settlements is reasonable, consistent with the law, and in the public interest, and therefore should be approved. PG&E believes the settlements should be approved because they are based on the claimants' reasonable bid preparation costs or reliance costs, one of the settlement structures set forth in the July ACR, and the basis upon which the Commission approved settlements that SDG&E reached with certain of its Update claimants in D.98-12-074. PG&E also argues that the settlements are reasonable because they meet the goal articulated in the July ACR of eliminating further litigation concerning the Update between PG&E and the settling bidders.

Because the AES settlement is the only one protested, PG&E and AES go into more detail on the reasonableness of this settlement. PG&E describes certain events that occurred during the course of AES' efforts to develop its Hunters Point project and identifies the costs AES incurred at that time. PG&E also offers several scenarios under which one might argue that AES' reliance interest expenditures incurred after certain events should be discounted or excluded because such costs were not reasonably incurred. The settling parties believe that the AES settlement, which is less than one third of AES' current claim, and which took years of settlement discussion, interspersed with litigation, and a Commission-sponsored mediation effort to achieve, is reasonable under various scenarios presented in the application.

B. Aglet

Aglet opposes PG&E's settlement with AES, unless the Commission disallows or excludes from rates about 25% of the PG&E/AES settlement amount. Aglet reaches its recommendation by excluding some of AES' claimed reliance costs because Aglet believes they are not reasonable. Aglet then further discounts AES' costs incurred from January 1994 through June 1996, based on a probability analysis of the viability of the project at each of these stages. Aglet believes that the costs should be adjusted to reflect the risk that the project would never have been completed.

Aglet recommends that if the Commission adopts its position, that it either give PG&E and AES an opportunity to revise the settlement so that ratepayers do not pay for amounts in excess of Aglet's estimates, or give PG&E an opportunity to accept that shareholders should bear the AES settlement costs in excess of Aglet's estimate. Aglet does not favor rejecting the settlement without giving the settling parties an opportunity to remove Aglet's recommended disallowance from rates. Aglet takes no position on the other settlements contained in the application.