<PAGE>
 
Exhibit 10.95

                        SETTLEMENT AGREEMENT AND RELEASE
                                        

     WHEREAS, differences have arisen between GEC Alsthom International, Inc.
("GEC Alsthom"), which was the supplier of generator and certain related
equipment at the Scrubgrass Power Plant, and Scrubgrass Generating Co., L.P.,
and Buzzard Power Corp. (collectively "Scrubgrass"), who own and operate the
Scrubgrass Power Plant.

     WHEREAS, Scrubgrass and GEC Alsthom wish to settle their differences
amicably, it is hereby agreed that:

     1.   REPAIR. GEC Alsthom shall repair the circuit ring at no charge 
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          over and above the agreed upon payments for the 1997 rewind.

     2.   PAYMENTS. In full and final settlement of all outstanding issues and
          --------
          claims, except as noted below with respect to vibration issues,
          Scrubgrass shall pay to GEC Alsthom the sum of $450,000, as follows:

     $50,000   Upon completion of the Circuit Ring Modification.

     $100,000  On the anniversary date of the Circuit Ring Modification
               beginning on the first anniversary of the completion of the
               Circuit Ring Modification and on each of the next three (3)
               succeeding anniversary dates.

     3.   WARRANTY.   GEC Alsthom warrants the work on the circuit ring repair 
          --------
          for a period of three years from completion. If notified during that
          three year period, GEC Alsthom will repair or replace any defective
          work or defective component of the repair, which shall be Scrubgrass'
          sole remedy under this warranty. In no event will GEG Alsthom be
          liable for consequential damages. There are no other warranties,
          express or implied, concerning the repair. Scrubgrass warrants that it
          will inform any person or entity who has or in the future may have an
          interest in the Power Plant of GEC Alsthom's limitations and
          disclaimers of warranties.

     4.   RELEASE OF GEC ALSTHOM. Scrubgrass, for itself, its predecessors,
          ----------------------
          successors, parents, subsidiaries, affiliates, and assigns, (referred
          to in this section as "Releasors"), does hereby release and forever
          discharge GEC Alsthom and any of its predecessors, successors,
          parents, subsidiaries, affiliates, agents and employees, from any and
          all past, present or future claims, demands, or causes of action, in
          law or in equity, including but not limited to any express or implied
          warranty claim, arising out of or related to any defect in, damage to,
          or failure of the generator and other equipment provided by GEC
          Alsthom at the Scrubgrass Power Plant, with the exception of the
          following three categories of present or future claims which survive
          this release.

              (a) claims arising out of the written warranty for the 1997 rewind

              (b) claims arising out of this Settlement Agreement and Release,
                  including but not limited to any claims under the warranty set
                  forth in paragraph 2, above.

              (c) claims related to the rotor vibrations recently detected at 
                  the generator.
<PAGE>
 
The preservation of certain categories of claims in this paragraph shall not be
any evidence of the validity or timeliness of any such claim. Scrubgrass shall
dismiss with prejudice the civil action it has commenced against GEC Alsthom in
Venango County Common Pleas Court, No. 301, 1997.

     5.   RELEASE OF SCRUBGRASS.    GEC Alsthom, for itself, its predecessors,
          ----------------------                                              
          successors, parents, subsidiaries, affiliates, and assigns, (referred
          to in this section as "Releasors"), does hereby release and forever
          discharge Scrubgrass and any of its predecessors, successors, parents,
          subsidiaries, affiliates, agents and employees, from any and all past,
          present or future claims, demands, or causes of action, in law or in
          equity, including but not limited to any obligations arising under a
          certain Proposal dated April 30, 1996 and related documents.

     6.   EXECUTION AND INTERPRETATION.  This Settlement Agreement may be 
          -----------------------------  
          executed in multiple counterparts and shall be construed according to
          the law of Pennsylvania.
 


 /s/ Donald Sturmer                                9/1/98
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Scrubgrass Generating Company, L.P.                Date

 

 /s/ William D. Linehan                            8/25/98
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Buzzard Power Corp.                                Date

 

 /s/ William F. Van Wurt                           5/28/98
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GEC Alsthom International, Inc.                    Date