10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 30, 2007

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 001-32239

Commerce Energy Group, Inc.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	20-0501090 (I.R.S. Employer Identification No.)
600 Anton Boulevard, Suite 2000
Costa Mesa, California	92626
(Address of principal executive offices)	(Zip code)

(714) 259-2500

(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o   Accelerated filer o   Non-accelerated filer þ

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

     As of June 11, 2007, 30,385,868 shares of the registrant’s common stock, par value $0.001 per share, were outstanding.

COMMERCE ENERGY GROUP, INC.

Form 10-Q

For the Quarterly Period Ended April 30, 2007

Index

	Page
	No.
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)		1
Condensed Consolidated Statements of Operations for the three and nine months ended April 30, 2007 and 2006		1
Condensed Consolidated Balance Sheets as of April 30, 2007 and July 31, 2006		2
Condensed Consolidated Statements of Cash Flows for the nine months ended April 30, 2007 and 2006		3
Notes to Condensed Consolidated Financial Statements		4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3. Quantitative and Qualitative Disclosures About Market Risk		25
Item 4. Controls and Procedures		25
PART II — OTHER INFORMATION
Item 1. Legal Proceedings		26
Item 1A. Risk Factors		27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		28
Item 3. Defaults Upon Senior Securities		28
Item 4. Submission of Matters to a Vote of Security Holders		29
Item 5. Other Information		29
Item 6. Exhibits		30
Signatures		32
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 10.5
EXHIBIT 10.6
EXHIBIT 10.7
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

COMMERCE ENERGY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
(Unaudited)

	Three Months Ended					Nine Months Ended
	April 30,					April 30,
	2007			2006		2007			2006
Revenue	$	95,518		$	57,755	$	258,670		$	194,777
APX settlement		5,057			—		5,057			—
Net revenue		100,575			57,755		263,727			194,777
Direct energy costs		82,946			49,643		221,509			174,664
Gross profit		17,629			8,112		42,218			20,113
Selling and marketing expenses		2,568			1,420		7,317			3,346
General and administrative expenses		9,803			5,911		27,382			20,367
Income (loss) from operations		5,258			781		7,519			(3,600	)
Other income (expense):
ACN arbitration settlement		(3,900	)		—		(3,900	)		—
Interest, net		185			221		846			710
Total other income and expenses		(3,715	)		221		(3,054	)		710
Net income (loss)	$	1,543		$	1,002	$	4,465		$	(2,890	)
Income (loss) per common share:
Basic	$	0.05		$	0.03	$	0.15		$	(0.09	)
Diluted	$	0.05		$	0.03	$	0.15		$	(0.09	)

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

1

COMMERCE ENERGY GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)

	April 30, 2007		July 31, 2006
	(Unaudited)
ASSETS
Current assets:
Cash and equivalents	$	21,133	$	22,941
Accounts receivable, net		50,245		30,650
Natural gas inventory		994		4,578
Prepaid expenses and other current		6,357		6,827
Total current assets		78,729		64,996
Restricted cash and equivalents		10,451		17,117
Deposits		1,143		2,506
Property and equipment, net		8,121		5,866
Goodwill		4,247		4,801
Other intangible assets, net		6,638		3,790
Total assets	$	109,329	$	99,076
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Energy and accounts payable	$	28,462	$	26,876
Other accrued liabilities		10,686		5,867
Total current liabilities		39,148		32,743
Commitments and contingencies
Stockholders’ equity:
Common stock — 150,000 shares authorized with $0.001 par value; 30,387 (unaudited) at April 30, 2007 and 29,632 shares issued and outstanding at July 31, 2006		60,466		58,849
Accumulated other comprehensive income		37		2,271
Retained earnings		9,678		5,213
Total stockholders’ equity		70,181		66,333
Total liabilities and stockholders’ equity	$	109,329	$	99,076

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

2

COMMERCE ENERGY GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

	Nine Months Ended
	April 30,
	2007			2006
Cash Flows From Operating Activities
Net income (loss)	$	4,465		$	(2,890	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		1,215			801
Amortization		1,550			835
Provision for doubtful accounts		2,793			1,940
Stock-based compensation expense		421			407
Changes in operating assets and liabilities:
Accounts receivable, net		(22,387	)		(210	)
Inventory		3,584			3,430
Prepaid expenses and other current assets		(367	)		4,407
Accounts payable		1,587			(10,140	)
Accrued liabilities and other		4,401			218
Net cash used in operating activities		(2,738	)		(1,202	)
Cash Flows From Investing Activities
Purchase of property and equipment		(3,470	)		(2,403	)
Purchase of intangible assets		(4,236	)		—
Sale of intangibles — customer contracts sold		756			—
Net cash used in investing activities		(6,950	)		(2,403	)
Cash Flows From Financing Activities
Credit line commitment fee		18			—
Proceeds from exercise of stock options		1,196			11
Repurchase of stock		—			(2,310	)
Decrease (increase) in restricted cash		6,666			(4,679	)
Net cash provided by (used in) financing activities		7,880			(6,978	)
Decrease in cash and cash equivalents		(1,808	)		(10,583	)
Cash and cash equivalents at beginning of period		22,941			33,344
Cash and cash equivalents at end of period	$	21,133		$	22,761

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

3

COMMERCE ENERGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS)
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

     The unaudited condensed consolidated financial statements as of April 30, 2007 and for the three and nine months ended April 30, 2007 and 2006 of Commerce Energy Group, Inc. (the “Company”) include its two wholly-owned subsidiaries: Commerce Energy, Inc. (“Commerce”) and Skipping Stone Inc. (“Skipping Stone”). All material inter-company balances and transactions have been eliminated in consolidation. As used herein and unless the context requires otherwise, the reference to the Company, “we,” “us” and “our” refer to Commerce Energy Group, Inc. and its subsidiaries.

Preparation of Interim Condensed Consolidated Financial Statements

     These interim condensed consolidated financial statements have been prepared by the Company’s management, without audit, in accordance with accounting principles generally accepted in the United States and, in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows for the periods presented. Certain information and note disclosures normally included in consolidated annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted in these condensed consolidated interim financial statements, although the Company believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated results of operations, financial position, and cash flows for the interim periods presented herein are not necessarily indicative of future financial results. These interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K/A (Amendment No. 1) for the year ended July 31, 2006.

Uses of Estimates

     The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts and timing of revenue and expenses, the reported amounts and classification of assets and liabilities, and disclosure of contingent assets and liabilities. These estimates and assumptions are based on the Company’s historical experience as well as management’s future expectations. As a result, actual results could materially differ from management’s estimates and assumptions. In preparing our financial statements and accounting for the underlying transactions and balances, we apply our accounting policies as disclosed in our notes to the condensed consolidated financial statements. The accounting policies relating to accounting for derivatives and hedging activities, inventory, independent system operator costs, allowance for doubtful accounts, revenue and unbilled receivables are those that we consider to be the most critical to an understanding of our financial statements because their application places the most significant demands on our ability to judge the effect of inherently uncertain matters on our financial results.

Reclassifications

     Certain amounts in the condensed consolidated financial statements for the comparative prior fiscal period have been reclassified to be consistent with the current fiscal period’s presentation.

4

COMMERCE ENERGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS)
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)

Revenue Recognition

     Energy revenues are recognized when the electricity and natural gas are delivered to the Company’s customers and are comprised of the following:

	Three Months Ended				Nine Months Ended
	April 30,				April 30,
	2007		2006		2007		2006
Retail electricity sales	$	52,654	$	37,800	$	156,776	$	132,168
Excess electricity sales		—		—		1,535		6,963
Total electricity sales		52,654		37,800		158,311		139,131
Retail natural gas sales		42,864		19,955		100,359		55,646
APX settlement		5,057		—		5,057		—
Net revenue	$	100,575	$	57,755	$	263,727	$	194,777

     The Company purchases electricity and natural gas utilizing forward physical delivery contracts based on the projected usage of its customers.

Stock-Based Compensation

     The total compensation cost associated with stock options and restricted stock for the three and nine months ended April 30, 2007 was $155 and $421, respectively, and for the three and nine months ended April 30, 2006 were $66 and $407 respectively. These costs are included in general and administrative expenses.

     The fair value of options granted is estimated on the date of grant using the Black-Scholes model based on the weighted-average assumptions in the table below. The assumptions for the expected lives are based on evaluations of historical and expected future exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of the grant with maturity dates approximating the expected life at the grant date. The historical volatility of the Company’s common stock is used as the basis for the expected volatility.

	Nine Months Ended
	April 30,
	2007			2006
Weighted-average risk-free interest rate		4.6	%		4.95	%
Average expected life in years		4.32			5.12
Expected dividends	None			None
Expected volatility		0.73			0.77

     A summary of option activity under the Company’s 1999 Equity Incentive Plan (the “1999 Plan”) and the Company’s 2006 Stock Incentive Plan (the “SIP”) and under certain individual plans, during the quarter ended April 30, 2007 is presented below.

	Options Outstanding
						Weighted
	Number of					Average		Aggregate
	Shares			Exercise Price		Exercise		Intrinsic
	(in Thousands)			Per Share		Price		Value
Options outstanding as of January 31, 2007		7,643		$	1.00-$3.75	$	2.32	$	50
Options exercised		(535	)	$	1.86-$2.75	$	2.24	$	45
Options awarded		45		$	2.56	$	2.56		—
Options outstanding as of April 30, 2007 (1)		7,153		$	1.00-$3.75	$	2.33	$	625

5

COMMERCE ENERGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS)
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)

(1) Options exercisable as April 30, 2007 were 6,903 with weighted average exercise price of $2.34 and an aggregate intrinsic value of $544.

     As of April 30, 2007, there was $178 of total unrecognized compensation cost related to non-vested outstanding stock options, which is expected to be recognized over the period May 2007 through March 2010. The total unrecognized compensation cost relating to non-vested restricted stock was $649 and will be recognized over the period of May 2007 through March 2010. For the three and nine months ended April 30, 2007, 100,000 and 230,000 shares, respectively, of restricted stock were issued for a total of 640,000 restricted shares outstanding with a total market value of $1,041 as of April 30, 2007. These restricted shares vest in accordance with the terms of various written agreements.

Employee Stock Purchase and Stock Incentive Plans

     The Company’s Amended and Restated 2005 Employee Stock Purchase Plan (the “ESPP”) allows eligible employees of the Company or any of its subsidiaries whose participation in the ESPP is determined to be in the best interest of the Company by the Board of Directors to purchase shares of the Company’s common stock through payroll deductions. From the commencement of the ESPP in July 2006, through April 2007, 41,862 shares have been purchased by employees under the ESPP.

     The Company’s 2006 Stock Incentive Plan (the “SIP”) allows for grants pursuant to a variety of awards, including options, share appreciation rights, restricted shares, restricted share units, deferred share units and performance-based awards in the form of stock appreciation rights, deferred shares and performance units. The Company has registered its common stock, which may be issued under the SIP, with the SEC on a Form S-8 Registration Statement and, at April 30, 2007, 988,334 shares of the Company’s common stock may be issued pursuant to awards under the SIP. Awards under the SIP may be made to key employees and directors of the Company or any of its subsidiaries whose participation in the SIP is determined to be in the best interests of the Company by the Compensation Committee of the Board of Directors.

Income Tax

     The Company has established valuation allowances to reserve its net deferred tax assets due to the uncertainty that the Company will realize the related tax benefits in the foreseeable future. At April 30, 2007, the Company had net operating loss carryforwards of approximately $12.4 million and $13.8 million for federal and state income tax purposes, respectively.

Comprehensive Income (Loss)

     Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income” (“SFAS 130”) establishes standards for reporting and displaying comprehensive income and its components in the Company’s consolidated financial statements. Comprehensive income is defined in SFAS 130 as the change in equity (net assets) of a business enterprise during a period from certain transactions and other events and circumstances and is comprised of net income and other comprehensive income (loss).

     The components of comprehensive income (loss) are as follows:

	Three Months Ended				Nine Months Ended
	April 30,				April 30,
	2007		2006		2007			2006
Net income (loss)	$	1,543	$	1,002	$	4,465		$	(2,890	)
Changes in fair value of cash flow hedges		454		854		(2,234	)		(168	)
Comprehensive income (loss)	$	1,997	$	1,856	$	2,231		$	(3,058	)

6

COMMERCE ENERGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS)
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)

     Accumulated other comprehensive income included in stockholders’ equity totaled $37 and $2,271 at April 30, 2007 and July 31, 2006, respectively.

Segment Reporting

     The Company’s chief operating decision makers consist of members of senior management that work together to allocate resources to, and assess the performance of, the Company’s business. These members of senior management currently manage the Company’s business, assess its performance, and allocate its resources as the single operating segment of energy retailing. As Skipping Stone, net of inter-company eliminations, only accounts for approximately 1% of total net revenue, and geographic information is not significant, no segment information is provided.

Accounts Receivable, Net

     Accounts receivable, net, is comprised of the following:

	April 30,			July 31,
	2007			2006
Billed	$	38,732		$	21,768
Unbilled		15,626			13,382
		54,358			35,150
Less allowance for doubtful accounts		(4,113	)		(4,500	)
Accounts receivable, net	$	50,245		$	30,650

Inventory

     Inventory represents natural gas in storage as required under customer choice programs. Inventory is stated at the lower of weighted average cost or market.

Note 2. Basic and Diluted Income (Loss) per Common Share

     Basic income (loss) per common share was computed by dividing net income (loss) available to common stockholders, by the weighted average number of common shares outstanding during the period. Diluted income per common share reflects the potential dilution that would occur if all outstanding options or other contracts to issue common stock were exercised or converted and was computed by dividing net income (loss) by the weighted average number of common shares plus dilutive common equivalent shares outstanding, unless they were anti-dilutive.

7

COMMERCE ENERGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS)
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)

     The following is a reconciliation of the numerator, income (loss), and the denominator, (common shares in thousands), used in the computation of basic and diluted income (loss) per common share:

	Three Months Ended				Nine Months Ended
	April 30,				April 30,
	2007		2006		2007		2006
Numerator:
Net income (loss)	$	1,543	$	1,002	$	4,465	$	(2,890	)
Net income (loss) applicable to common stock —basic and diluted	$	1,543	$	1,002	$	4,465	$	(2,890	)
Denominator:
Weighted-average outstanding common shares — basic		29,938		30,186		29,763		30,659
Effect of stock options		254		142		119		—
Weighted-average outstanding common shares — diluted		30,192		30,328		29,882		30,659

Note 3. Market and Regulatory

     The Company currently serves electricity and gas customers in ten states, operating within the jurisdictional territory of twenty-two different local distribution companies (“LDCs”). Regulatory requirements are determined at the individual state level and administered and monitored by the Public Utility Commission (“PUC”) of each state. Operating rules and tariff filings by LDCs for changes in their allowed billing rates to their customers, among other things, can significantly impact the viability of the Company’s sales and marketing plans and its overall operating and financial results. The Company sees several significant matters or trends in our retail electricity and natural gas markets which are discussed below.

     In September 2001, the California Public Utility Commission (“CPUC”) issued a ruling suspending the right of Direct Access, which allowed electricity customers to buy their power from a supplier other than the electric utilities. This suspension, although permitting the Company to keep current Direct Access customers and to solicit Direct Access customers served by other electricity service providers, prohibits the Company from soliciting new non-Direct Access customers in California for an indefinite period of time.

     The Federal Energy Regulatory Commission (“FERC”) and other regulatory and judicial bodies continue to examine the behavior of market participants during the California energy crisis of 2000 and 2001, and several legal proceedings directly or indirectly involving the Company arose from the crisis. Certain of those proceedings involving APX, Inc. (“APX”) were resolved in January 2007. See Note 5 for further discussion of the APX settlement. Certain other such proceedings that may affect the Company remain pending. The Company cannot at this time predict whether, or to what extent, these proceedings will have an impact on the Company’s financial results.

     Currently, the Company markets natural gas in twelve LDC markets within the seven states of California, Florida, Georgia, Maryland, Nevada, Ohio and Pennsylvania. Based upon review of business growth opportunities and related market regulations, in January 2007, the Company divested approximately 7,000 of its natural gas customers in the Georgia and New York markets and received resulting net proceeds of approximately $690. A number of LDCs in whose territory we serve our customers have filed, or communicated expectations of filing, for approval of rate increases to their customers due to significant increases in the market price of natural gas. Although the impact of these filings cannot currently be estimated, they are not anticipated to adversely impact the Company’s financial results.

8

COMMERCE ENERGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS)
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)

Note 4. HESCO Customer Acquisition

     Effective September 1, 2006, the Company acquired from Houston Energy Services Company, L.L.C. (“HESCO”) certain assets consisting principally of contracts with end-use customers in California, Florida, Nevada, Kentucky and Texas consuming approximately 12 billion cubic feet of natural gas annually. The acquisition price of approximately $4,100 in cash was allocated to customer contracts and is being amortized over an estimated life of four years.

Note 5. Contingencies

APX Settlement

     During 2000 and 2001, Commerce bought, sold and scheduled power in the California wholesale energy markets through the markets and services of APX. As a result of a complaint filed at FERC by San Diego Gas and Electric Co. in August 2000 and a series of subsequent FERC orders, Commerce became involved in proceedings at FERC related to sales and schedules in the California Power Exchange Corporation (“PX”) and the California Independent System Operator Corporation (“CAISO”) markets, Docket No. EL00-95 (the “California Refund Case”). A part of that proceeding related to APX’s involvement in those markets.

     On January 5, 2007, APX, Commerce and certain other parties (collectively, the “Settling Parties”) signed an APX Settlement and Release of Claims Agreement (the “APX Settlement Agreement”) and filed such agreement along with a Joint Offer of Settlement and Motion for Expedited Consideration with FERC in the California Refund Case. The APX Settlement Agreement, among other things, established a mechanism for allocating refunds owed to APX and to resolve certain other matters and claims related to APX’s participation in the PX and CAISO centralized spot markets for wholesale electricity from May 1, 2000 through June 20, 2001. The effectiveness of the APX Settlement Agreement was subject to receipt of FERC’s approval, which was received on March 1, 2007.

     Under the APX Settlement Agreement, several Settling Parties will be entitled to payments from APX, with Commerce expected to receive up to approximately $6,500. The Company received $5,100 of the settlement payment in April 2007. The precise amount and timing of the remainder of the disbursements under the APX Settlement Agreement will depend on a number of factors, including, without limitation, verification of settlement calculations. The remaining monies earmarked for Commerce under the settlement are not guaranteed to be paid, and Commerce has not independently verified the amounts payable. By entering into the APX Settlement Agreement, claims against Commerce by any party to the APX Settlement Agreement for refunds, disgorgement of profits or other monetary or non-monetary remedies for APX-related claims shall be deemed resolved with prejudice and settled insofar as APX remains a net payment recipient (as that term is defined in the APX Settlement Agreement) in the proceeding at FERC.

     In addition, the APX Settlement Agreement resolves and terminates certain disputes pending before FERC and the United States Court of Appeals for the Ninth Circuit relating to APX’s actions in the PX and CAISO centralized spot markets for wholesale electricity, as well as disputes among participants in the APX market and the appropriate allocation of monies due among the APX participants insofar as APX continues to be a net refund recipient during the settlement period.

9

COMMERCE ENERGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS)
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)

ACN Arbitration Settlement

     In connection with the Company’s purchase of certain assets (including 80,000 residential and small commercial natural gas and electricity customers) of American Communications Network, Inc. (“ACN”) and its subsidiaries in February 2005, the Company and Commerce entered into a Sales Agency Agreement with ACN. ACN terminated the Sales Agency Agreement effective February 9, 2006. Subsequent to the termination of the Sales Agency Agreement, disputes arose between the parties which, in March 2006, were submitted to arbitration before the American Arbitration Association in New York. On May 10, 2007 the panel of arbitrators issued an interim ruling in favor of ACN against the Company. On June 11, 2007, the Company, and ACN entered into a Settlement Agreement and Mutual Release (the “ACN Settlement Agreement”). Pursuant to the ACN Settlement Agreement, the Company and ACN mutually released all claims against one another, and the Company made a cash payment of $3.9 million to ACN. In addition, Commerce and ACN filed with the American Arbitration Association a Stipulation to Dismiss All Claims with Prejudice relating to the arbitration proceeding. Pursuant to the ACN Settlement Agreement, Commerce has no future financial or other obligations to ACN, other than customary covenants set forth in the ACN Settlement Agreement. The $3.9 million arbitration settlement obligation was reflected as a contract arbitration loss in the three-month period ended April 30, 2007.

Note 6. Derivative Financial Instruments

     The Company purchases substantially all of its power and natural gas utilizing forward physical delivery contracts. These physical delivery contracts are defined as commodity derivative contracts under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). Using the exemption available for qualifying contracts under SFAS No. 133, the Company applies the normal purchase and normal sale accounting treatment to its forward physical delivery contracts. Accordingly, the Company records revenue generated from customer sales as energy is delivered to retail customers and the related energy under the forward physical delivery contracts is recorded as direct energy costs when received from suppliers. As a result of a sale in January 2005 of two significant physical delivery contracts back to the original electricity supplier, the normal purchase and normal sale exemption had not been available for the forward supply costs purchased for the PJM-ISO market for the period February 2005 through July 2006. Effective August 1, 2006, the normal purchase and normal sale exemption has been reinstated for the PJM-ISO market.

     For forward or future contracts that do not meet the qualifying criteria for normal purchase, normal sale accounting treatment, the Company elects cash flow hedge accounting, where appropriate. Under cash flow hedge accounting, the fair value of the contract is recorded as a current or long-term derivative asset or liability. Subsequent changes in the fair value of the derivative assets and liabilities are recorded on a net basis in Accumulated other comprehensive income (“OCI”), and reflected as direct energy cost in the statement of operations as the related energy is delivered.

     The amounts recorded in Accumulated OCI at April 30, 2007 and July 31, 2006 related to cash flow hedges are summarized in the following table:

10

COMMERCE ENERGY GROUP, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS)
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)

	April 30,			July 31,
	2007			2006
Current assets	$	—		$	1,817
Current liabilities		(63	)		(362	)
Deferred gains		100			816
Hedge ineffectiveness		—			—
Accumulated other comprehensive income	$	37		$	2,271

     Certain financial derivative instruments (such as swaps, options and futures), designated as fair-value hedges, economic hedges or as speculative, do not qualify or meet the requirements for normal purchase, normal sale accounting treatment or cash flow hedge accounting and are recorded currently in operating income (loss) and as a current or long-term derivative asset or liability depending on their term. The subsequent changes in the fair value of these contracts may result in operating income (loss) volatility as the fair value of the changes are recorded on a net basis in direct energy cost in the consolidated statement of operations for each fiscal period. For the three months ending April 30, 2007, the impact of financial derivatives accounted for as mark-to-market resulted in an expense of $214, and resulted mostly from economic hedging related to the Company’s natural gas portfolio. The notional value of all derivatives accounted for as mark-to-market which was outstanding at April 30, 2007 was $7,767.

     As of April 30, 2007, the Company had no derivative assets included in Prepaid expenses and other, and $63 of total derivative liabilities included in Accrued liabilities.

Note 7. Credit Facility

     In June 2006, Commerce entered into a Loan and Security Agreement (the “Credit Facility”) with Wachovia Capital Finance Corporation (Western) (the “Agent”) for up to $50,000. The three-year Credit Facility is secured by substantially all of the Company’s assets and provides for issuance of letters of credit and for revolving credit loans which we may use for working capital and general corporate purposes. The availability of letters of credit and loans under the Credit Facility is limited by a calculated borrowing base consisting of the majority of the Company’s cash on deposit with the Agent and the Company’s receivables and natural gas inventories. As of April 30, 2007, letters of credit issued under the facility totaled $21,000 and there were no outstanding borrowings. Basic letters of credit fees range from 1.50 to 1.75 percent per annum, depending on the level of Excess Availability, as defined in the Credit Facility. The Company also pays an unused line fee equal to 0.375 percent of the unutilized credit line. Generally, outstanding borrowings under the Credit Facility are priced at a domestic bank rate plus 0.25 percent or LIBOR plus 2.75 percent.

     The Credit Facility contains covenants, subject to specific exceptions, restricting Commerce, the Company and their subsidiaries from: (a) incurring additional indebtedness; (b) granting certain liens; (c) disposing of certain assets; (d) making certain restricted payments; (e) entering into certain other agreements; and (f) making certain investments. The Credit Facility also restricts the Company’s ability to pay cash dividends on its common stock; restricts Commerce from making cash dividends to the Company; and limits the amount of the Company’s annual capital expenditures. Additionally, the Credit Facility requires Commerce to maintain at all times a minimum of $10,000 of Eligible Cash Collateral, as defined in the Credit Facility.

     On March 15, 2007 the Company and Commerce entered into a Third Amendment to Loan and Security Agreement and Waiver (the “Third Amendment”) pursuant to which the Agent and the co-lender under the Credit Facility waived prior or existing instances of covenant non-compliance relating to the maintenance of a minimum Fixed Charge Coverage Ratio and a minimum amount of Excess Availability, each as defined in the Credit Facility. The Agent and co-lender also agreed in the Third Amendment to extend the period of time during which Commerce will be permitted to maintain a reduced level of Excess Availability in the future.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     As used herein and unless the context requires otherwise, references to the “Company,” “we,” “us,” and “our” refer specifically to Commerce Energy Group, Inc. and its subsidiaries. “Commerce” refers to Commerce Energy, Inc., our principal operating subsidiary. This discussion and analysis should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in our Annual Report on Form 10-K/A (Amendment No. 1) for the year ended July 31, 2006, or the Form 10-K.

     Some of the statements in this Item 2 are forward-looking statements regarding our assumptions, projections, expectations, targets, intentions or beliefs about future events which involve risks and uncertainties. All statements other than statements of historical facts included in this Item 2 relating to expectation of future financial performance, continued growth, changes in economic conditions or capital markets and changes in customer usage patterns and preferences, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “forecast,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or the negative of these terms or other comparable terms. The forward-looking statements contained in this Item 2 involve known and unknown risks and uncertainties and situations that may cause our or our industry’s actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements. Factors that might cause actual events or results to differ materially from those indicated by these forward-looking statements may include the matters listed under “Risk Factors” in Item 1A in the Form 10-K and elsewhere in this Form 10-Q, including, without limitation, changes in general economic conditions in the markets in which we may compete; fluctuations in the market price of energy which may negatively impact the competitiveness of our product offerings to current and future customers; increased competition; our ability to retain key members of management; our ability to address changes in laws and regulations; our ability to successfully integrate businesses or customer portfolios that we may acquire; our ability to obtain and retain credit necessary to profitably support our operations; adverse state or federal legislation or regulation or adverse determinations by regulators; and other factors identified from time to time in our filings with the Securities and Exchange Commission, or the SEC. We caution that, while we make such statements in good faith and we believe such statements are based on reasonable assumptions, including, without limitation, management’s examination of historical operating trends, data contained in records and other data available from third parties, we cannot assure you that our expectations will be realized.

     Any forward-looking statement speaks only as of the date on which such statement is made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all such factors.

Our Company

     We are an independent marketer of retail electricity and natural gas to residential, commercial, industrial and institutional end-use customers. Commerce is licensed by the Federal Energy Regulatory Commission, or FERC, and by state regulatory agencies as an unregulated retail marketer of electricity and natural gas.

     We were founded in 1997 as a retail electricity marketer in California. As of April 30, 2007, we delivered electricity to approximately 126,000 customers in California, Maryland, Michigan, New Jersey, Pennsylvania and Texas; and natural gas to approximately 59,000 customers in California, Florida, Georgia, Maryland, Nevada, Ohio and Pennsylvania. Growth of our business has occurred organically and through acquisitions.

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     The electricity and natural gas we sell to our customers is purchased from third-party suppliers under both short-term and long-term contracts. We do not own electricity generation or delivery facilities, natural gas producing properties or pipelines. The electricity and natural gas we sell is generally metered and always delivered to our customers by the local utilities. The local utilities also provide billing and collection services for many of our customers on our behalf. Additionally, to facilitate load shaping and demand balancing for our customers, we buy and sell surplus electricity and natural gas from and to other market participants when necessary. We utilize third party facilities for the storage of our natural gas.

     The growth of our business depends upon a number of factors, including the degree of deregulation in each state, our ability to acquire new and retain existing customers and our ability to acquire energy for our customers at competitive prices and on reasonable credit terms.

Significant Customer Acquisitions

ACN Energy Acquisition

     On February 9, 2005, the Company acquired certain assets of ACN Utility Services, Inc., or ACNU, a subsidiary of American Communications Network, Inc., or ACN, and ACN’s retail electricity and natural gas sales business. The assets and operations acquired were comprised primarily of approximately 80,000 natural gas and electricity residential and small commercial customers, natural gas inventory associated with utility and pipeline storage and transportation agreements and natural gas and electricity supply agreements, scheduling and capacity contracts, software and other infrastructure. The aggregate cash purchase price of $6.9 million was allocated to intangible assets acquired, consisting of customer contracts, computer software and computer license agreements and goodwill.

HESCO Acquisition

     Effective September 1, 2006, Commerce acquired approximately 300 contracts to supply natural gas to commercial and industrial end-users in California, Florida, Nevada, Kentucky and Texas from Houston Energy Services Company, L.L.C., or HESCO. The customers acquired from HESCO, or the HESCO customers, are expected to consume more than 12 million dekatherms (billion cubic feet) annually. The acquisition price of approximately $4.1 million in cash was allocated to customer contracts and is being amortized over an estimated life of four years.

Market and Regulatory

     The Company currently serves electricity and gas customers in ten states, operating within the jurisdictional territory of twenty-two different local distribution companies, or LDCs. Regulatory requirements are determined at the individual state level and administered and monitored by the Public Utility Commission, PUC, of each state. Operating rules and tariff filings by LDCs for changes in their allowed billing rates to their customers, among other things, can significantly impact the viability of the Company’s sales and marketing plans as well as its overall operating and financial results. In addition, we believe there are several significant markets or regulatory matters or trends in our retail electricity and natural gas markets, discussed below, which may have an effect on our operating and financial results.

     In September 2001, the California Public Utility Commission, or CPUC, issued a ruling suspending the right of Direct Access, which allowed electricity customers to buy their power from a supplier other than the electric utilities. This suspension, although permitting us to keep current Direct Access customers and to solicit Direct Access customers served by other electricity service providers, prohibits us from soliciting new non-Direct Access customers in California for an indefinite period of time.

     FERC and other regulatory and judicial bodies continue to examine the behavior of market participants during the California energy crisis of 2000 and 2001, and several legal proceedings directly or indirectly involving the Company arose from the crisis. Certain of those proceedings involving APX, Inc., or APX,

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were resolved in January 2007. See the discussion under the caption “APX Settlement below” for a further discussion of this matter. Certain other proceedings related to the California energy crisis of 2000 and 2001 that may affect the Company remain pending. The Company cannot at this time predict whether, or to what extent, these proceedings will have an impact on the Company’s financial results.

     Currently, the Company markets natural gas in twelve LDC markets within the seven states of California, Florida, Georgia, Maryland, Nevada, Ohio and Pennsylvania. Based upon review of business growth opportunities and related market regulations, in January 2007, the Company divested approximately 7,000 natural gas customers in its Georgia and New York markets. Due to significant increases in the market price of natural gas, a number of LDCs in whose territory we serve our customers have filed or communicated expectations of filing for approval of rate increases to their customers. Although the impact of these filings cannot currently be estimated, they are not anticipated to adversely impact the Company’s financial results.

APX Settlement

     During 2000 and 2001, Commerce bought, sold and scheduled power in the California wholesale energy markets through the markets and services of APX. As a result of a complaint filed at FERC by San Diego Gas and Electric Co. in August 2000 and a line of subsequent FERC orders, Commerce became involved in proceedings at FERC related to sales and schedules in the California Power Exchange Corporation, or PX, and the California Independent System Operator Corporation, or CAISO, markets, Docket No. EL00-95, which we refer to as the California Refund Case. A part of that proceeding related to APX’s involvement in those markets.

     On January 5, 2007, APX, Commerce and certain other parties, whom we refer to as the Settling Parties, signed an APX Settlement and Release of Claims Agreement, or the APX Settlement Agreement, and filed such agreement along with a Joint Offer of Settlement and Motion for Expedited Consideration with FERC in the California Refund Case. The APX Settlement Agreement, among other things, established a mechanism for allocating refunds owed to APX and to resolve certain other matters and claims related to APX’s participation in the PX and CAISO centralized spot markets for wholesale electricity from May 1, 2000 through June 20, 2001. The APX Settlement Agreement became effective on March 1, 2007.

     Under the APX Settlement Agreement, several Settling Parties are entitled to payments from APX, with Commerce expected to receive up to approximately $6,500. The Company received $5,100 of the settlement payment in April 2007. The precise amount and timing of the remainder of the disbursements under the APX Settlement Agreement will depend on a number of factors, including, without limitation, verification of settlement calculations. The remaining monies earmarked for Commerce under the settlement are not guaranteed to be paid, and Commerce has not independently verified the amounts payable. By entering into the APX Settlement Agreement, claims against Commerce by any party to the APX Settlement Agreement for refunds, disgorgement of profits or other monetary or non-monetary remedies for APX-related claims shall be deemed resolved with prejudice and settled insofar as APX remains a net payment recipient (as that term is defined in the APX Settlement Agreement) in the proceeding at FERC.

     In addition, the APX Settlement Agreement resolves and terminates certain disputes pending before FERC and the United States Court of Appeals for the Ninth Circuit relating to APX’s actions in the PX and CAISO centralized spot markets for wholesale electricity, as well as disputes among participants in the APX market and the appropriate allocation of monies due among the APX participants insofar as APX continues to be a net refund recipient (as that term is defined in the APX Settlement Agreement) during the settlement period.

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Results of Operations

Three Months Ended April 30, 2007 Compared to Three Months Ended April 30, 2006

     The following table summarizes the results of our operations for the three months ended April 30, 2007 and 2006 (dollars in thousands).

	Three Months Ended April 30,
	2007					2006
	Dollars		% Revenue			Dollars		% Revenue
Retail electricity sales	$	52,654		52	%	$	37,800		65	%
APX settlement		5,057		5	%		—		—
Natural gas sales		42,864		43	%		19,955		35	%
Net revenue		100,575		100	%		57,755		100	%
Direct energy costs		82,946		82	%		49,643		86	%
Gross profit		17,629		18	%		8,112		14	%
Selling and marketing expenses		2,568		3	%		1,420		3	%
General and administrative expenses		9,803		10	%		5,911		10	%
Income from operations	$	5,258		5	%	$	781		1	%

Net revenue

     The following table summarizes net revenues for the three months ended April 30, 2007 and 2006 (dollars in thousands).

	Three Months Ended April 30,
	2007					2006
	Dollars		% Revenue			Dollars		% Revenue
Retail Electricity Sales:
California	$	13,374		13	%	$	14,963		26	%
Texas		22,312		22	%		4,104		7	%
Pennsylvania/New Jersey		9,329		9	%		14,748		25	%
Maryland		5,942		6	%		—		—
Michigan and Others		1,697		2	%		3,985		7	%
Total Retail Electricity Sales		52,654		52	%		37,800		65	%
Natural Gas Sales:
California		7,543		7	%		6,366		11	%
Ohio		14,880		15	%		9,006		16	%
Georgia		61		—			2,711		5	%
HESCO Customers		19,756		20	%		—		—
All Others		624		1	%		1,872		3	%
Total Natural Gas Sales		42,864		43	%		19,955		35	%
APX Settlement		5,057		5	%		—		—
Net Revenue	$	100,575		100	%	$	57,755		100	%

      Net revenues increased $42.8 million, or 74.1%, to $100.6 million for the three months ended April 30, 2007 from $57.8 million for the comparable quarter in 2006. The increase in net revenues was driven primarily by a 39.3% increase in electricity sales, a 114.8% increase in natural gas sales and the receipt of $5.1 million from APX

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Settlement. Higher retail electricity sales reflects the impact of a 445% increase in sales volumes in Texas due to customer growth, partly offset by lower retail sales in the Pennsylvania/New Jersey and Michigan markets resulting from customer attrition. Higher natural gas sales reflect the impact of the September 2006 acquisition of the HESCO customers.

     Retail electricity sales increased $14.9 million to $52.7 million for the three months ended April 30, 2007, from $37.8 million for the same period in 2006, reflecting the impact of a 30% increase in sales volume and, to a lesser extent, higher sales prices. For the three months ended April 30, 2007, we sold 485 million kilowatt hours, or kWh, at an average retail price per kWh of $0.108, as compared to 372 million kWh sold at an average retail price per kWh of $0.100 for the comparable prior year period.

     Natural gas sales increased $22.9 million to $42.8 million for the three months ended April 30, 2007 from $20.0 million for the same period in 2006 reflecting the impact of a 180% increase in sales volumes, partly offset by a 23.3% decline in average retail sales prices. For the three months ended April 30, 2007, we sold 4.6 million dekatherms, or DTH, at an average retail price per DTH of $9.29, as compared to 1.6 million DTH, sold at an average retail price per DTH of $12.12 during this same period in 2006. For the three months ended April 30, 2007, sales to the commercial and industrial natural gas customers acquired in September 2006 totaled $19.8 million on sales volume of 2.5 million DTH.

     We had approximately 185,000 electricity and natural gas customers at April 30, 2007, an increase of 48% from 125,000 at April 30, 2006. We had approximately 126,000 electricity and 59,000 natural gas customers at April 30, 2007, as compared to 70,000 and 55,000 at April 30, 2006. An increase of approximately 63,000 electricity customers in Texas and Maryland more than offset high customer attrition in our Pennsylvania/New Jersey and Michigan markets; an increase of approximately 17,000 natural gas customers in our Ohio markets offset customer attrition in other natural gas markets. Attrition in our retail customer base largely reflects the impact of increased sales prices to our customers resulting from our passing on higher wholesale energy supply and transmission costs, without corresponding price increases from incumbent utilities due to the lack of market responsive ratemaking and a lagging regulatory approval process. Additionally, decline in our customer base in individual markets can be partly attributed to focus of our sales and marketing customer acquisition efforts.

Direct Energy Costs

     Direct energy costs, which are recognized concurrently with related energy sales, include the commodity cost of natural gas and electricity, electricity transmission costs from the Independent Systems Operators, transportation costs from LDCs and pipelines, other fees and costs incurred from various energy-related service providers and energy-related taxes that cannot be passed directly through to the customer.

     Direct energy costs for the third quarter of fiscal 2007 totaled $43.6 million and $39.3 million for electricity and natural gas, respectively, compared to $33.9 million and $15.6 million, respectively, in the same period in fiscal 2006. Electricity costs averaged $0.090 per kWh for the third quarter 2007 compared to $0.090 per kWh for the same period in fiscal 2006. Direct energy costs for natural gas averaged $8.53 per DTH for the third quarter of fiscal 2007 as compared to $9.45 per DTH for the same period in fiscal 2006.

Gross Profit

     Gross profit increased $9.5 million, or 117.3%, to $17.6 million for the three months ended April 30, 2007 from $8.1 million for the comparable period in 2006. Gross profit from electricity increased $10.4 million to $14.2 million for the three months ended April 30, 2007 from $3.7 million for the comparable period in 2006, reflecting the impact of customer growth in Texas and Maryland and the APX settlement. Gross profit from natural gas decreased $0.9 million to $3.5 million for the three months ended April 30, 2007, from $4.4

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million for the comparable period in 2006. The decrease in gross profit reflects the impact of lower gross margins on new term customers in Ohio and California and the exit from Georgia and New York markets, partly offset by customer growth in Ohio and contribution from the September 2006 commercial and industrial customer acquisition.

Selling and Marketing Expenses

     Selling and marketing expenses increased to $2.6 million for the third quarter of fiscal 2007 from $1.4 million for the third quarter of fiscal 2006, reflecting the impact of higher advertising and sales programs, telemarketing, third-party commissions and direct mail costs related to the Company’s increased customer acquisition initiatives.

General and Administrative Expenses

     General and administrative expenses increased to $9.8 million for the third quarter of fiscal 2007 from $5.9 million for the comparable quarter of fiscal 2006, reflecting an increase in personnel costs relating to higher customer service and information technology staff, higher legal, bad debt and depreciation and amortization expenses.

ACN Arbitration Settlement

     In connection with the Company’s purchase of certain assets (including 80,000 residential and small commercial natural gas and electricity customers) of American Communications Network, Inc., or ACN, and its subsidiaries in February 2005, the Company and Commerce entered into a Sales Agency Agreement with ACN pursuant to which ACN’s network of sales representatives sold the Company’s products and the Company made payments to ACN. ACN terminated the Sales Agency Agreement effective February 9, 2006, leading to various claims being asserted by and between ACN and the Company. In March 2006, the parties’ dispute was submitted to arbitration before the American Arbitration Association in New York. The arbitration was bifurcated into two phases: a determination of liability phase and a damages phase. On May 10, 2007, the panel of arbitrators issued an interim ruling in favor of ACN. On June 11, 2007, the Company and ACN entered into a Settlement Agreement and Mutual Release (the “ACN Settlement Agreement”). Pursuant to the ACN Settlement Agreement, the Company and ACN mutually released all claims against one another, and the Company made a cash payment of $3.9 million to ACN. In addition, Commerce and ACN filed with the American Arbitration Association a Stipulation to Dismiss All Claims with Prejudice relating to the arbitration proceeding. Pursuant to the ACN Settlement Agreement, Commerce has no future financial or other obligations to ACN, other than customary covenants set forth in the ACN Settlement Agreement. The $3.9 million arbitration settlement obligation was reflected as a contract arbitration loss in the three-month period ended April 30, 2007. Additionally, the Company incurred legal fees related to the ACN arbitration of $.5 million during the three months ended April 30, 2007, which is included in general and administrative expenses.

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Income Taxes

     No provision for, or benefit from, income taxes was recorded for the three months ended April 30, 2007 or 2006. We provided valuation allowances equal to our calculated tax due to the amount of the Company’s net operating loss carryforwards and the related uncertainty that we would realize these tax benefits in the foreseeable future. At April 30, 2007, the Company had net operating loss carryforwards of approximately $12.4 million and $13.8 million for federal and state income tax purposes, respectively.

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     Nine Months Ended April 30, 2007 Compared to Nine Months Ended April 30, 2006

     The following table summarizes the results of our operations for the nine months ended April 30, 2007 and 2006 (dollars in thousands).

	Nine Months Ended April 30,
	2007					2006
	Dollars		% Revenue			Dollars			% Revenue
Retail electricity sales	$	156,776		59	%	$	132,168			68	%
APX settlement		5,057		2	%		—			—
Natural gas sales		100,359		38	%		55,646			29	%
Excess electricity sales		1,535		1	%		6,963			3	%
Net revenue		263,727		100	%		194,777			100	%
Direct energy costs		221,509		84	%		174,664			90	%
Gross profit		42,218		16	%		20,113			10	%
Selling and marketing expenses		7,317		3	%		3,346			2	%
General and administrative expenses		27,382		10	%		20,367			10	%
Income (loss) from operations	$	7,519		3	%	$	(3,600	)		(2	%)

Net revenue

     The following table summarizes net revenues for the nine months ended April 30, 2007 and 2006 (dollars in thousands).

	Nine Months Ended April 30,
	2007					2006
	Dollars		% Revenue			Dollars		% Revenue
Retail Electricity Sales:
California	$	44,729		17	%	$	49,051		25	%
Texas		57,124		22	%		14,066		7	%
Pennsylvania/New Jersey		34,305		13	%		49,884		26	%
Maryland		12,794		5	%		—		—
Michigan and Others		7,824		2	%		19,167		10	%
Total Retail Electricity Sales		156,776		59	%		132,168		68	%
Natural Gas Sales:
California		18,178		7	%		19,360		10	%
Ohio		30,398		11	%		22,939		12	%
Georgia		2,676		1	%		7,816		4	%
HESCO Customers		47,181		18	%		—		—
All Others		1,926		1	%		5,531		3	%
Total Natural Gas Sales		100,359		38	%		55,646		29	%
Excess Electricity Sales		1,535		1	%		6,963		3	%
APX Settlement		5,057		2	%		—		—
Net Revenue	$	263,727		100	%	$	194,777		100	%

      Net revenues increased $69.0 million, or 35.4%, to $263.7 million for the nine months ended April 30, 2007 from $194.8 million for the nine months ended April 30, 2006. The increase in net revenues was driven primarily by an 18.6% increase in electricity sales, an 80.4% increase in natural gas sales and the receipt of $5.1 million from APX Settlement. Higher retail electricity sales reflects the impact of a 284.1% increase in sales volumes in Texas due to customer growth, partly offset by lower retail sales in the Pennsylvania/New Jersey and Michigan

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markets resulting from customer attrition. Higher natural gas sales reflect the impact of the September 2006 acquisition of the HESCO customers.

     Retail electricity sales increased $24.6 million to $156.8 million for the nine months ended April 30, 2007 from $132.2 million for the same period in 2006 reflecting the impact of higher sales prices, and a 4% increase in sales volume. For the nine months ended April 30, 2007, we sold 1,391 million kilowatt hours, or kWh, at an average retail price per kWh of $0.112, as compared to 1,344 million kWh sold at an average retail price per kWh of $0.098 for the comparable prior year period. Wholesale excess electricity sales for the nine months ended April 30, 2007 decreased $5.4 million compared to the same period in 2006 reflecting the impact of shorter term forward supply commitments due to higher wholesale electricity prices, increased price volatility and conversion of many customers to month-to-month variable-priced contracts.

     Natural gas sales increased $44.7 million to $100.4 million for the nine months ended April 30, 2007 from $55.6 million for the same period in 2006 reflecting the impact of sales to the commercial and industrial natural gas customers acquired in September 2006. For the nine months ended April 30, 2007, we sold 11.6 million dekatherms, or DTH, at an average retail price per DTH of $8.65, as compared to 4.5 million DTH, sold at an average retail price per DTH of $12.41 during this same period in 2006. From the date of acquisition through April 30, 2007, natural gas sales to the HESCO customers totaled $47.2 million on sales volume of 6.5 million DTH.

Direct Energy Costs

     Direct energy costs for the nine months ended April 30, 2007 totaled $130.5 million and $91.2 million for electricity and natural gas, respectively, compared to $123.1 million and $51.3 million, respectively, in the same period in fiscal 2006. Electricity costs averaged $0.094 per kWh for nine months ended April 30, 2007 compared to $0.086 per kWh for the same period in fiscal 2006. Direct energy costs for natural gas for averaged $7.85 per DTH for the nine months ended April 30, 2007 as compared to $11.45 per DTH for the same period in fiscal 2006.

Gross Profit

     Gross profit increased $22.1 million, to $42.2 million for the nine months ended April 30, 2007 from $20.1 million for the nine months ended April 30, 2006. Gross profit from electricity totaled $32.9 million for the nine months ended April 30, 2007 compared to $15.8 million for the nine months ended April 30, 2006, reflecting the impact of customer growth in the Texas and Maryland markets and the APX settlement. Gross profit for natural gas totaled $9.4 million for the nine months ended April 30, 2007 compared to $4.3 million for the nine months ended April 30, 2006. The increase in gross profit from natural gas reflect the impact of (a) customer growth in Ohio markets; and (b) gross margin contribution from the commercial and industrial natural gas customers acquired in September 2006; offset by (c) a mark-to-market loss incurred in the second quarter of fiscal 2006 on natural gas supply contracts.

Selling and Marketing Expenses

     Selling and marketing expenses increased to $7.3 million for the nine months ended April 30, 2007 from $3.3 million for the same period last year, reflecting the impact of higher advertising and sales programs, telemarketing, direct mail costs and third-party commissions related to the Company’s increased customer acquisition initiatives.

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General and Administrative Expenses

     General and administrative expenses increased to $27.4 million for the nine months ended April 30, 2007 from $20.4 million for the same period last year, reflecting higher customer service and information technology personnel costs, incentive compensation, and higher costs related to our bank credit facility as well as increased consulting expenses.

ACN Arbitration Settlement

     On June 11, 2007, the Company and ACN entered into an agreement settling all arbitration claims and disputes. The total amount of the agreed upon settlement payment of $3.9 million was recorded as in the nine month period ended April 30, 2007. Related legal fees of $.7 million were incurred during the nine months ended April 30, 2007 and were included in general and administrative expenses.

Income Taxes

     No provision for, or benefit from, income taxes was recorded for the nine months ended April 30, 2007 or 2006. We provided valuation allowances equal to our calculated tax due to the amount of the Company’s net operating loss carryforwards due to the uncertainty that we would realize these tax benefits in the foreseeable future.

Liquidity and Capital Resources

	(Dollars in Thousands)
	April 30, 2007		July 31, 2006
Cash and cash equivalents	$	21,133	$	22,941
Working capital	$	39,581	$	32,253
Current ratio (current assets to current liabilities)		2.0:1.0		2.0:1.0
Restricted cash	$	10,451	$	17,117
Short term borrowings		—		—
Letters of credit outstanding	$	21,404	$	24,053

     As of April 30, 2007, unrestricted cash and cash equivalents decreased to $21.1 million from $22.9 million at July 31, 2006. The decrease in unrestricted cash and cash equivalents primarily reflect the impact of the HESCO acquisition in September 2006 as well as the impact of increases in accounts receivable related to the HESCO acquisition, seasonal increases in other natural gas accounts receivable, additions of property and equipment related to our major systems upgrades, offset by a seasonal reduction in natural gas inventories, reductions in restricted cash and equivalents and receipt of the APX settlement proceeds.

     The increase in working capital of $7.3 million from $32.3 million to $39.5 million was due primarily to the reduction in restricted cash and the receipt of the APX settlement proceeds, offset by the HESCO acquisition. Restricted cash decreased by $6.7 million to $10.5 million as of April 30, 2007 primarily as a result of replacing a cash secured letter of credit with a surety bond of $5.7 million required to operate our retail electricity business in the State of Pennsylvania. Restricted cash includes $10 million of the Company’s cash required to be deposited as Eligible Cash Collateral pursuant to the terms of our credit facility described below. In addition, as of April 30, 2007, we had $2.2 million in deposits pledged as collateral in connection with energy supply and distribution energy agreements. Letters of credit outstanding at April 30, 2007 increased to $21.4 million with the $2.6 million increase relating primarily to supplier credit and performance terms required by the HESCO acquisition, offset in part by substituting partially secured sureties for letters of credit to meet regulatory collateral requirements.

     Our principal sources of liquidity for funding our ongoing operations are our existing cash and cash equivalents, cash generated from operations, and credit extended by suppliers. Credit terms from our energy suppliers may require us to post collateral against our forward energy purchases and mark-to-market credit exposures. In June 2006, we entered into a working capital backed credit facility to be utilized

21

primarily for the issuance of letters of credit in support of our forward energy purchases from suppliers. Based upon our current plans, our estimate of forward energy prices, level of operations and business conditions, we believe that our current restricted and unrestricted cash balances, cash generated from operations and our credit facility (pursuant to its existing terms) will be sufficient to meet our capital requirements and working capital needs for the foreseeable future. However, there can be no assurance that we will not be required to seek other financing in the future or that such financing, if required, will be available on terms satisfactory to us.

     Capital Expenditures for the nine months ending April 30, 2007 were $3,470 compared to the nine months ending April 30, 2006 of $2,403. This was due primarily to our continuing enhancement of information technology systems and software.

Credit Facility

     In June 2006, Commerce entered into a Loan and Security Agreement, or the Credit Facility, with Wachovia Capital Finance Corporation (Western), or the Agent, for up to $50 million. The three-year Credit Facility is secured by substantially all of the Company’s assets and provides for issuance of letters of credit and for revolving credit loans, which we may use for working capital and general corporate purposes. The availability of letters of credit and loans under the Credit Facility is limited by a calculated borrowing base consisting of the majority of the Company’s cash on deposit with the Agent and the Company’s receivables and natural gas inventories. As of April 30, 2007, letters of credit issued under the facility totaled $21.4 million, and there were no outstanding borrowings. Fees for letters of credit issued range from 1.50 to 1.75 percent per annum, depending on the level of Excess Availability, as defined in the Credit Facility. We also pay an unused line fee equal to 0.375 percent of the unutilized credit line. Generally, outstanding borrowings under the Credit Facility are priced at a domestic bank rate plus 0.25 percent or LIBOR plus 2.75 percent.

     The Credit Facility contains covenants, subject to specific exceptions, restricting Commerce, the Company and its subsidiaries from: (a) incurring additional indebtedness; (b) granting certain liens; (c) disposing of certain assets; (d) making certain restricted payments; (e) entering into certain other agreements; and (f) making certain investments. The Credit Facility also restricts our ability to pay cash dividends on our common stock; restricts Commerce from making cash dividends to the Company without the consent of the Agent and The CIT Group/Business Credit, Inc., or, collectively, the Lenders; and limits the amount of our annual capital expenditures to $3.5 million without the consent of the Lenders. We must also maintain a minimum of $10 million of Eligible Cash Collateral, as defined in the Credit Facility, at all times.

     In September 2006, the Company and Commerce entered into a First Amendment to Loan and Security Agreement and Waiver, or the First Amendment, pursuant to which the Lenders waived prior or existing instances of covenant non-compliance relating to the maintenance of Eligible Cash Collateral, as defined in the Credit Facility, capital expenditures and the notification to the Lenders of the grant of certain liens to a natural gas supplier. Pursuant to the First Amendment, the Lenders also agreed to certain prospective waivers of covenants in the Credit Facility to enable Commerce to consummate the HESCO acquisition in compliance with the Credit Facility.

     In October 2006, the Company entered into a Second Amendment to Loan and Security Agreement and Waiver, or the Second Amendment, pursuant to which the Lenders waived prior or existing instances of covenant non-compliance relating to the maintenance of a minimum Fixed Charge Coverage Ratio and a minimum amount of Excess Availability. The Lenders also agreed in the Second Amendment to defer prospective compliance with the Fixed Charge Coverage Ratio covenant and to reduce and restructure the amount of Excess Availability that Commerce will be required to maintain through April 2007.

     On March 15, 2007, the Company and Commerce entered into a Third Amendment to Loan and Security Agreement and Waiver, or the Third Amendment, pursuant to which the Lenders waived prior or

22

existing instances of covenant non-compliance relating to the maintenance of a minimum Fixed Charge Coverage Ratio and a minimum amount of Excess Availability. The Lenders also agreed in the Third Amendment to extend the period of time during which the minimum amount of Excess Availability that Commerce will be required to maintain established by the Second Amendment will be applicable.

Consolidated Cash Flows

     The following table summarizes our statements of cash flows for the nine months ended April 30, 2007 and 2006 (in thousands):

	Nine Months Ended
	April 30, 2007			April 30, 2006
Net cash provided by (used in):
Operating activities	$	(2,738	)	$	(1,202	)
Investing activities		(6,950	)		(2,403	)
Financing activities		7,880			(6,978	)
Net decrease in cash and cash equivalents	$	(1,808	)	$	(10,583	)

     Net cash used in operating activities increased $1.5 million for the nine months ending April 30, 2007 compared to the nine months ending April 30, 2006 reflecting the impact of higher accounts receivable partly offset by increased net income (loss), adjusted for non-cash charges.

     Net cash used in investing activities increased $4.5 million for the nine months ended April 30, 2007 compared to the nine months ended April 30, 2006, reflecting the use of cash in the HESCO acquisition. Capital expenditures for the nine months ended April 30, 2007 and 2006 were $3.5 million and $2.4 million, respectively, comprised primarily of expenditures related to the development and enhancement of information technology systems.

     Net cash of $7.9 million was provided by financing activities for the nine months ended April 30, 2007 compared to net cash of $7.0 million used in the nine months ended April 30, 2006, reflecting the change in restricted cash and cash equivalents used to secure a performance bond in Pennsylvania and $2.3 million of cash used in the nine months ended April 30, 2006 to repurchase Company stock in connection with a settlement agreement with former executive officers, partially offset by proceeds from the exercise of stock options of $1.2 million.

Contractual Obligations

     As of April 30, 2007, we have forward-purchase contract commitments (entered into in the normal course of doing business) for $37.7 million in electricity and $19.0 million in gas. These contracts are for one year or less and are with various suppliers.

Critical Accounting Policies and Estimates

     The discussion and analysis of our financial condition and operating results are based on our consolidated financial statements. The preparation of this Form 10-Q requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of our financial statements, and the reported amount of revenue and expenses during the reporting period. Actual results may differ from those estimates and assumptions. In preparing our financial statements and accounting for the underlying transactions and balances, we apply our accounting policies as disclosed in our notes to the consolidated financial statements. The accounting policies discussed below are those that we consider to be critical to an understanding of our financial statements because their application places the most significant demands on our ability to judge the effect of inherently uncertain matters on our financial results. For all of these policies, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.

• Accounting for Derivative Instruments and Hedging Activities — We purchase substantially all of our power and natural gas under forward physical delivery contracts for supply to our retail customers. These forward physical delivery contracts are defined as commodity derivative contracts under Statement of Financial Accounting Standard No. 133, “Accounting for Derivative

23

	Instruments and Hedging Activities,” or SFAS No. 133. Using the exemption available for qualifying contracts under SFAS No. 133, we apply the normal purchase and normal sale accounting treatment to a majority of our forward physical delivery contracts. Accordingly, we record revenue generated from customer sales as energy is delivered to our retail customers and the related energy cost under our forward physical delivery contracts is recorded as direct energy costs when received from our suppliers. We use financial derivative instruments (such as swaps, options and futures) as an effective way of assisting in managing our price risk in energy supply procurement. For forward or future contracts that do not meet the qualifying criteria for normal purchase, normal sale accounting treatment, we elect cash flow hedge accounting, where appropriate.
	We also utilize other financial derivatives, primarily swaps, options and futures to hedge our commodity price risks. Certain derivative instruments, which are designated as economic hedges or as speculative, do not qualify for hedge accounting treatment and require current period mark to market accounting in accordance with SFAS No. 133, with fair market value being used to determine the related income or expense that is recorded each quarter in the statement of operations. As a result, the changes in fair value of derivatives that do not meet the requirements of normal purchase and normal sale accounting treatment or cash flow hedge accounting are recorded in operating income (loss) and as a current or long-term derivative asset or liability. To the extent that the hedges are not effective, for transactions qualifying as hedges, any ineffective portion of the changes in fair market value is recorded currently in direct energy costs. The subsequent changes in the fair value of these contracts could result in operating income (loss) volatility as the fair value of the changes are recorded on a net basis in direct energy costs in our consolidated statement of operations for each period.
	As a result of a sale on January 28, 2005 of two significant electricity forward physical delivery contracts (on a net cash settlement basis) back to the original supplier, the normal purchase and normal sale exemption under SFAS No. 133 was no longer available for our Pennsylvania market (PJM-ISO). Accordingly, for the period from February 2005 through July 2006, we designated forward physical delivery contracts entered into for our Pennsylvania electricity market as cash flow hedges, whereby market to market accounting gains or losses were deferred and reported as a component of Other Comprehensive Income (Loss) until the time of physical delivery. Effective August 1, 2006, the normal purchase and normal sale exemption has been reinstated for our Pennsylvania market.
•	Utility and independent system operator — Included in direct energy costs, along with the cost of energy that we purchase, are scheduling costs, Independent System Operator fees, interstate pipeline costs and utility service charges. The actual charges and certain energy costs are not finalized until subsequent settlement processes are performed for all distribution system participants. Prior to the completion of settlements (which may take from one to several months), we estimate these costs based on historical trends and preliminary settlement information. The historical trends and preliminary information may differ from actual information resulting in the need to adjust previous estimates.
•	Allowance for doubtful accounts — We maintain allowances for doubtful accounts for estimated losses resulting from non-payment of customer billings. If the financial conditions of certain of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
•	Net revenue and unbilled receivables — Our customers are billed monthly at various dates throughout the month. Unbilled receivables represent the estimated sale amount for power delivered to a customer at the end of a reporting period, but not yet billed. Unbilled receivables from sales are estimated based upon the amount of power delivered, but not yet billed, multiplied by the estimated sales price per unit.

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• Inventory — Inventory consists of natural gas in storage as required by state regulators and contracted obligations under customer choice programs. Inventory is stated at the lower of cost or market.

• Customer Acquisition Cost — The Company pays an upfront fee to certain third-party vendors upon the successful acquisition of new customer contracts. These customer acquisition costs related to specific new customers contracts acquired are deferred and amortized over the life of the initial customer contract, typically one year.

• Legal matters — From time to time, we may be involved in litigation and other adversarial legal proceedings. We regularly evaluate our exposure to threatened or pending litigation and other business contingencies and accrue for estimated losses on such matters in accordance with Statement of Financial Accounting Standard No. 5, “Accounting for Contingencies.” As additional information about current or future litigation or other contingencies becomes available, management will assess whether such information warrants the recording of additional expense relating to our contingencies. Such additional expense could potentially have a material adverse impact on our results of operations and financial position.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

     There have been no material changes to information called for by this Item 3 of Part I to this Quarterly Report on Form 10-Q from the disclosures set forth in Part II, Item 7A in the Company’s Annual Report on Form 10-K/A (Amendment No. 1) for the year ended July 31, 2006, except as set forth below:

     As of April 30, 2007, we had 62% of our forecasted fixed-priced energy load through July 31, 2007 covered through either fixed price power purchases with counterparties, or price protected through financial hedges.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

     Our Chief Executive Officer and our Chief Financial Officer have concluded, based upon their evaluation as of the end of the period covered by this Report, that our disclosure controls and procedures (as defined under Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act) are effective to ensure that all information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, and allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

     No change in the Company’s internal control over financial reporting (as defined under Rule 13a-15(f) under the Exchange Act) occurred during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

     Reference is made to our Form 10-K/A (Amendment No. 1) for the year ended July 31, 2006, or the Form 10-K, our Quarterly Report on Form 10-Q for the period ended October 31, 2006, our Quarterly Report on Form 10-Q for the period ended January 31, 2007, our Current Report on Form 8-K filed with the SEC on March 7, 2007, and our Current Report on Form 8-K filed with the SEC on June 12, 2007, or the June 12^th Form 8-K, for a summary of our previously reported legal proceedings. Since the date of the June 12^th Form 8-K, there have been no material developments in previously reported legal proceedings, except as set forth below.

     Arbitration Proceeding and Settlement with American Communications Network, Inc. On May 10, 2007, a panel of arbitrators issued an Interim Award of Arbitrators in connection with American Arbitration Association Case No. 13 198 J 00688 06, an arbitration of various disputes between Commerce and American Communications Network, Inc., or ACN, relating to the Sales Agency Agreement between ACN and Commonwealth Energy Corporation (currently, Commerce) dated February 9, 2005. The hearing of the arbitration was bifurcated into two phases: a determination of liability phase and a damages phase. On May 10, 2007, the arbitrators issued an interim ruling in favor of ACN on the liability phase. On June 11, 2007, the Company, Commerce, ACN and Peter Weigand, an employee of ACN, entered into a Settlement Agreement and Mutual Release, or the ACN Settlement Agreement. Pursuant to the ACN Settlement Agreement, the Company and ACN mutually released all claims against one another, the Company and Mr. Weigand mutually released all claims against one another, and the Company made a cash payment of $3.9 million to ACN. In addition, Commerce and ACN filed with the American Arbitration Association a Stipulation to Dismiss All Claims with Prejudice relating to the arbitration proceeding. Pursuant to the ACN Settlement Agreement, Commerce has no future financial or other obligations to ACN, other than customary covenants set forth in the ACN Settlement Agreement. The $3.9 million arbitration settlement obligation was reflected as a contract arbitration loss in the three-month period ended April 30, 2007. Additionally, the Company incurred legal fees related to the ACN arbitration of $.5 million during the three months ended April 30, 2007, which is included in general and administrative expenses.

     APX Settlement. In April 2007, the Company received $5.1 million from APX, Inc. as part of the $6.5 million settlement announced on March 7, 2007. The Company continues to expect to receive up to the remaining amount of the settlement, subject to the outcome of certain administrative and judicial proceedings. Under certain circumstances, the Company could be required to return or redistribute some or all of the settlement funds. For a further discussion of the APX Settlement, see the Part I, Item 2 of this Report under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations – APX Settlement.”

     The Company is currently, and from time to time may become, involved in litigation concerning claims arising out of the operations of the Company in the normal course of business. The Company is currently not involved in any legal proceeding that is expected, individually or in the aggregate, to have a material adverse effect on the Company’s results of operations or financial position.

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Item 1A. Risk Factors.

     There have been no significant changes to the risk factors disclosed in the Form 10-K, except as described below:

     We may need additional capital in the future and it may not be available on acceptable terms, or not at all.

     In the future, we may need to: raise additional capital to fund the working capital requirements of our operations and growth beyond 2007; enhance or expand the range of services or products we offer to our customers; or respond to competitive pressures or perceived opportunities, such as investment, acquisition and expansion activities; if such additional capital funds are not available when required or on acceptable terms, our business and financial results could suffer.

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     We may issue additional shares of common stock that may dilute the value of our common stock and adversely affect the market price of our common stock.

     In addition to the approximately 30.4 million shares of our common stock outstanding at June 11, 2007, we may issue additional shares of common stock in the following scenarios: a significant number of additional shares of our common stock my be issued if we seek to raise capital through offerings of our common stock, securities convertible into our common stock, or rights to acquire such securities or our common stock. Additionally, we may issue approximately 7.2 million shares of our common stock pursuant to outstanding stock options; and 1.0 million shares of our common stock pursuant to awards under our 2006 Stock Incentive Plan.

     A large issuance of shares of our common stock will decrease the ownership percentage of current outstanding shareholders and may result in a decrease in the market price of our common stock. Any large issuance may also result in a change in control of the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

     None.

Item 3. Defaults Upon Senior Securities.

     None.

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Item 4. Submission of Matters to a Vote of Security Holders.

     None.

Item 5. Other Information.

     None.

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Item 6. Exhibits.

     The exhibits listed below are hereby filed with the Securities and Exchange Commission, or the SEC, as part of this Report.

Exhibit
Number			Description
	3.1		Amended and Restated Certificate of Incorporation of Commerce Energy Group, Inc., previously filed with the SEC on July 6, 2004 as Exhibit 3.3 to Commerce Energy Group, Inc.’s Registration Statement on Form 8-A and incorporated herein by reference.
	3.2		Certificate of Designation of Series A Junior Participating Preferred Stock of Commerce Energy Group, Inc. dated July 1, 2004 previously filed with the SEC on July 6, 2004 as Exhibit 3.4 to Commerce Energy Group, Inc.’s Registration Statement on Form 8-A and incorporated herein by reference.
	3.3		Amended and Restated Bylaws of Commerce Energy Group, Inc., previously filed with the SEC on July 6, 2004 as Exhibit 3.6 to Commerce Energy Group, Inc.’s Registration Statement on Form 8-A and incorporated herein by reference.
	4.1		Rights Agreement, dated as of July 1, 2004, entered into between Commerce Energy Group, Inc. and Computershare Trust Company, as rights agent, previously filed with the Commission on July 6, 2004 as Exhibit 10.1 to Commerce Energy Group, Inc.’s Registration Statement on Form 8-A and incorporated herein by reference.
	4.2		Form of Rights Certificate, previously filed with the Commission on July 6, 2004 as Exhibit 10.2 to Commerce Energy Group, Inc.’s Registration Statement on Form 8-A and incorporated herein by reference.
	10.1		Third Amendment to Loan and Security Agreement dated March 15, 2007 among Commerce Energy, Inc., Commerce Energy Group, Inc., Wachovia Capital Finance Corporation (Western) and The CIT Group/Business Credit, Inc., previously filed with the SEC on March 19, 2007 as Exhibit 10.9 to Commerce Energy Group, Inc.’s Quarterly Report on Form 10-Q and incorporated herein by reference.
	10.2		Settlement Agreement and Mutual Release dated June 11, 2007 among Commerce Energy Group, Inc., Commerce Energy, Inc., Peter Weigand and American Communications Network, Inc., previously filed with the SEC on June 12, 2007 as Exhibit 99.1 to Commerce Energy Group, Inc.’s Current Report on Form 8-K and incorporated herein by reference.
	10.3	*	Employment Agreement dated March 26, 2007 between Commerce Energy Group, Inc. and Erik A. Lopez, Sr.
	10.4	*	Indemnification Agreement dated March 26, 2007 between Commerce Energy Group, Inc. and Erik A. Lopez, Sr.
	10.5	*	Restricted Share Award Agreement dated March 27, 2007 between Commerce Energy Group, Inc. and Erik A. Lopez, Sr.
	10.6	*	Stock Option Award Agreement dated March 27, 2007 between Commerce Energy Group, Inc. and Erik A. Lopez, Sr.
	10.7	*	Commerce Energy Group, Inc. Bonus Program as amended by First Amendment adopted March 27, 2007.
	31.1		Principal Executive Officer Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934.
	31.2		Principal Financial Officer Certification required by Rule 13a-14(a) of the Securities Exchange Act of Act of 1934.
	32.1		Principal Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted

30

Exhibit
Number		Description
		pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2	Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Indicates management contract or compensatory plan.

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	COMMERCE ENERGY GROUP, INC.
Date: June 14, 2007	By:	/s/ STEVEN S. BOSS
		Steven S. Boss
		Chief Executive Officer (Principal Executive Officer)
Date: June 14, 2007	By:	/s/ LAWRENCE CLAYTON, JR.
		Lawrence Clayton, Jr.,
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

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EXHIBIT INDEX

Exhibit
Number			Description
	3.1		Amended and Restated Certificate of Incorporation of Commerce Energy Group, Inc., previously filed with the SEC on July 6, 2004 as Exhibit 3.3 to Commerce Energy Group, Inc.’s Registration Statement on Form 8-A and incorporated herein by reference.
	3.2		Certificate of Designation of Series A Junior Participating Preferred Stock of Commerce Energy Group, Inc. dated July 1, 2004 previously filed with the SEC on July 6, 2004 as Exhibit 3.4 to Commerce Energy Group, Inc.’s Registration Statement on Form 8-A and incorporated herein by reference.
	3.3		Amended and Restated Bylaws of Commerce Energy Group, Inc., previously filed with the SEC on July 6, 2004 as Exhibit 3.6 to Commerce Energy Group, Inc.’s Registration Statement on Form 8-A and incorporated herein by reference.
	4.1		Rights Agreement, dated as of July 1, 2004, entered into between Commerce Energy Group, Inc. and Computershare Trust Company, as rights agent, previously filed with the Commission on July 6, 2004 as Exhibit 10.1 to Commerce Energy Group, Inc.’s Registration Statement on Form 8-A and incorporated herein by reference.
	4.2		Form of Rights Certificate, previously filed with the Commission on July 6, 2004 as Exhibit 10.2 to Commerce Energy Group, Inc.’s Registration Statement on Form 8-A and incorporated herein by reference.
	10.1		Third Amendment to Loan and Security Agreement dated March 15, 2007 among Commerce Energy, Inc., Commerce Energy Group, Inc., Wachovia Capital Finance Corporation (Western) and The CIT Group/Business Credit, Inc., previously filed with the SEC on March 19, 2007 as Exhibit 10.9 to Commerce Energy Group, Inc.’s Quarterly Report on Form 10-Q and incorporated herein by reference.
	10.2		Settlement Agreement and Mutual Release dated June 11, 2007 among Commerce Energy Group, Inc., Commerce Energy, Inc., Peter Weigand and American Communications Network, Inc., previously filed with the SEC on June 12, 2007 as Exhibit 99.1 to Commerce Energy Group, Inc.’s Current Report on Form 8-K and incorporated herein by reference.
	10.3	*	Employment Agreement dated March 26, 2007 between Commerce Energy Group, Inc. and Erik A. Lopez, Sr.
	10.4	*	Indemnification Agreement dated March 26, 2007 between Commerce Energy Group, Inc. and Erik A. Lopez, Sr.
	10.5	*	Restricted Share Award Agreement dated March 27, 2007 between Commerce Energy Group, Inc. and Erik A. Lopez, Sr.
	10.6	*	Stock Option Award Agreement dated March 27, 2007 between Commerce Energy Group, Inc. and Erik A. Lopez, Sr.
	10.7	*	Commerce Energy Group, Inc. Bonus Program as amended by First Amendment adopted March 27, 2007.
	31.1		Principal Executive Officer Certification required by Rule 13a-14(a) of the Securities Exchange Act of 1934.
	31.2		Principal Financial Officer Certification required by Rule 13a-14(a) of the Securities Exchange Act of Act of 1934.
	32.1		Principal Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	32.2		Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Indicates management contract or compensatory plan.

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EX-10.3

                                                                    EXHIBIT 10.3

                              EMPLOYMENT AGREEMENT

     This Employment Agreement ("Agreement") is entered into and effective as of
March 26, 2007 ("Effective Date") by and between COMMERCE ENERGY GROUP, INC., a
Delaware corporation, on behalf of itself and any and all of its subsidiaries
(together, the "Company"), and ERIK A. LOPEZ, SR. ("Executive").

                                    RECITALS

     A. The Company is in the business of providing a range of diversified
energy services (the "Business").

     B. The Company wishes to employ Executive to serve as its Senior Vice
President and General Counsel ("General Counsel").

     C. Executive wishes to be employed by the Company and to serve in such
capacity under the terms and conditions below.

     NOW, THEREFORE, the parties agree as follows:

     1. POSITION AND DUTIES.

          (a) From March 26, 2007 ("Commencement Date"), through the termination
of this Agreement in accordance with its terms, Company will employ Executive to
serve as its General Counsel, reporting to Company's Chief Executive Officer
("CEO"). As General Counsel, Executive will be responsible for all compliance,
legal reporting and legal affairs of the Company, and will perform such other
duties and responsibilities customarily expected to be performed by the chief
legal officer of a publicly reporting commercial business entity, and as are
reasonably required and/or as may be prescribed by the CEO or the Company's
Board of Directors ("Board") from time to time.

          (b) The location of Executive's employment will be the Company's
headquarters offices in Orange County, California, but Executive from time to
time may be required to travel to other geographic locations in connection with
the performance of his duties.

     2. STANDARDS OF PERFORMANCE. Executive will at all times faithfully,
industriously and to the best of his ability, experience and talents perform all
of the duties required of and from him pursuant to the terms of this Agreement.
Executive will devote his full business energies and abilities and all of his
business time to the performance of his duties hereunder and will not, without
the Company's prior written consent, render to others any service of any kind
(whether or not for compensation) that, in the Company's sole but reasonable
judgment, would or might interfere with the full performance of his duties
hereunder. Notwithstanding the foregoing, Executive is permitted to spend
reasonable amounts of time to manage his personal financial and legal affairs
and, with the Company's consent which will not be unreasonably withheld, to
serve on civic, not-for-profit, charitable, or industry boards and advisory
committees, provided that such activities, individually and collectively, do not
materially interfere with the performance of Executive's duties hereunder. In no
event will Executive engage in any activities that could



reasonably create a conflict of interest or the appearance of a conflict of
interest, or that violate his duties to the Company under the rules of
professional conduct applicable to attorneys licensed to practice law in
California. Executive shall be subject to the Company's policies, procedures and
approval practices, as generally in effect from time to time.

     3. TERM. Executive will be employed for no specific term and until
terminated pursuant to the terms of this Agreement. Except as otherwise provided
in the Agreement, the Company and Executive shall each have a right to terminate
this Agreement upon sixty (60) days written notice.

     4. COMPENSATION, BENEFITS AND POLICIES.

          (a) Base Salary. As an annual base salary ("Base Salary") for all
services rendered pursuant to this Agreement, Executive will be paid an initial
Base Salary in the gross amount of Two Hundred Sixty-Five Thousand Dollars
($265,000) calculated on an annualized basis, less necessary withholdings and
authorized deductions, and payable pursuant to the Company's regular payroll
practices at the time. The Base Salary is first subject to review within the
first three months after the end of the fiscal year ending July 31, 2007
("fiscal 2007") and, thereafter, subject to periodic review not less frequently
than annually within the first three months after the end of the next successive
fiscal year, and to increase (but not decrease) as approved by the Compensation
Committee of the Board (the "Compensation Committee"), or, if the Board desires
to approve increases to the Base Salary, the Board, in the sole discretion of
the Compensation Committee or the Board, as applicable.

          (b) Incentive Bonus Eligibility. Beginning with fiscal 2007 and for
each year thereafter during the term of this Agreement, Executive shall be
eligible to participate in the Commerce Energy Group, Inc. Bonus Program adopted
by the Board on January 25, 2007, as such Program may be amended from time to
time (the "Bonus Program") or in a successor plan and in other incentive bonus
plans generally available to the other executive officers of the Company.
Executive shall be designated as an "Executive Team" member for purposes of the
Bonus Program and the Potential Bonus Percentages referenced in the Bonus
Program for a particular fiscal year applicable to "Participants within the
Executive Team (other than the CEO)" shall apply to the Executive. Executive's
objectives and measurements and weight values for fiscal 2007 for purposes of
the Bonus Program shall be created by the Compensation Committee of the Board on
or prior to April 30, 2007.

          (c) Stock Options.

               (i) Term Option. As promptly as practicable during the first open
     trading window period that occurs on or after the Commencement Date (the
     "Grant Date"), the Company shall grant to Executive a non-qualified stock
     option (the "Term Option") to purchase 45,000 shares of common stock, par
     value $0.001 per share, of the Company (the "Common Stock"). The Term
     Option shall become exercisable as follows: 15,000 shares shall become
     vested and fully exercisable on each of the first, second and third
     anniversaries of the Commencement Date. The exercise price per share shall
     be the Fair Market Value (as defined in Commerce Energy Group, Inc. 2006
     Stock Incentive Plan) of the Common Stock on the Grant Date.


                                      -2-



               (ii) Option Agreements Controlling. The Term Option shall be
     evidenced by a stock option agreement in substantially the same form as
     attached hereto as Exhibit A. If a conflict arises between this Agreement
     and any such option agreement, the option agreement will govern.

          (d) Restricted Stock Award. On the Grant Date, the Company shall grant
to Executive a stock bonus award in the form of restricted stock representing
60,000 shares of Common Stock (the "Restricted Shares"). Such Restricted Shares
shall be subject to forfeiture, and shall vest as follows: (i) 20,000 of the
Restricted Shares shall vest as of the first anniversary of the Commencement
Date; (ii) 20,000 of the Restricted Shares shall vest as of the second
anniversary of the Commencement Date; and (iii) 20,000 of the restricted shares
shall vest as of the third anniversary of the Commencement Date. Executive must
be employed as of the applicable anniversary of the Commencement Date for the
portion of the Restricted Shares to vest as of that date. The restricted stock
grant shall be evidenced by a restricted stock agreement in the form attached
hereto as Exhibit B. If a conflict arises between this Agreement and the
restricted stock agreement, the restricted stock agreement will govern.

          (e) Vacation Time Off and Benefits. Executive will accrue paid time
off for vacation at the rate of three (3) weeks for each year of employment.
Except for emergencies or other unanticipated events, the days selected for
Executive's vacation must be mutually agreeable to the Company and to Executive.
Executive will accrue paid time off for illness pursuant to the Company's
regular policies. In addition, Executive is entitled to participate in any plans
regarding benefits of employment, including pension, profit sharing, group
health, disability insurance and other employee welfare benefit plans now
existing or hereafter established to the extent that Executive is eligible under
the terms of such plans and if the other executive officers of the Company
generally are eligible to participate in such plan. The Company may, in its sole
discretion and from time to time, establish additional senior management benefit
plans as it deems them appropriate. Executive understands that any such plans
may be modified or eliminated in the Company's sole discretion in accordance
with applicable law.

          (f) Reimbursement of Business Expenses. The Company will promptly
reimburse to Executive his reasonable, customary and documented out-of-pocket
business expenses, including cellular telephone expenses, in connection with the
performance of his duties under this Agreement, and in accordance with the
policies and procedures established by the Company.

          (g) Sarbanes-Oxley Act Loan Prohibition. To the extent that any
Company benefit, program, practice, arrangement or this Agreement would or might
otherwise result in Executive's receipt of an illegal loan (the "Loan"), the
Company shall use commercially reasonable efforts to provide Executive with a
substitute for the Loan that is lawful and of at least equal value to Executive.
If this cannot be done, or if doing so would be significantly more expensive to
the Company than making the Loan, the Company need not make the Loan to
Executive or provide him a substitute for it.


                                      -3-



     5. TERMINATION OF EMPLOYMENT.

          (a) By Company Without Cause. The Company may terminate Executive's
employment without Cause (as defined in this Agreement) effective on sixty (60)
days' written notice. In such event and subject to the other provisions of this
Agreement, Executive will be entitled to:

               (i) continued coverage under the Company's benefit plans through
     the termination date;

               (ii) payment of all earned but unpaid compensation (including
     accrued unpaid vacation) through the effective date of termination, payable
     on or before the termination date;

               (iii) reimbursement of any monies advanced or incurred by
     Executive in connection with his Employment for reasonable and necessary
     Company-related business expenses incurred on or before the termination
     date;

               (iv) payment of the equivalent of the Base Salary Executive would
     have earned over the next 12 months (less required withholdings and
     authorized deductions) at his then current Base Salary rate, with 50% of
     said amount payable in a lump sum on the first business day after six (6)
     months from the termination date and the remaining 50% payable in six (6)
     equal monthly installments starting on the first business day after seven
     (7) months from the termination date (the "Severance Payment");

               (v) at Executive's option, reimbursement of insurance premiums
     payable to continue his group health coverage pursuant to the provisions of
     COBRA for the first twelve (12) months following the termination date; and

               (vi) The number of outstanding unvested stock options and
     restricted stock previously granted to Executive that would have vested
     over the twelve (12) month period after such termination as if Executive
     remained employed by the Company shall vest upon such termination
     ("Accelerated Vesting").

Executive shall not receive the payments and benefits under subsections
(iv)-(vi), above, unless he signs the severance agreement and general release
document attached as Exhibit C. In addition, if Executive accepts other
employment within twelve (12) months of the termination date, the Company's
obligation to pay any unpaid portion of the Severance Payment and premiums for
continuation of group health insurance coverage will be extinguished as of the
date the employment offer is accepted by Executive.

          (b) By Company With Cause. The Company may terminate Executive's
employment at any time and without prior notice, written or otherwise, for
Cause. As used in this Agreement, "Cause" shall mean any of the following
conduct by Executive: (i) material breach of this Agreement, or of a Company
policy or of a law, rule or regulation applicable to the Company or its
operations; (ii) demonstrated and material neglect of duties, or failure or
refusal to perform the material duties of his position following written notice
from the Board and a reasonable opportunity to cure of not less than twenty (20)
days, or the failure to follow a


                                      -4-



reasonable and lawful instruction of the Board following written notice from the
Board and an opportunity to cure of at least ten (10) days, unless, in either
case, the Board reasonably determines that notice and the opportunity to cure
would be impractical or futile; (iii) misconduct that is serious in nature,
self-dealing, fraud or similar conduct related to Executive's employment with
the Company; (iv) having been convicted of (or entered a plea of nolo
contendere) with respect to (A) a felony; or (B) a crime involving fraud,
dishonesty or moral turpitude; or (v) having engaged in intentional misconduct
as an employee of the Company, which misconduct or violation results in material
damage to the Company or its reputation and continues after written notice
thereof specifying the particular events or conditions which constitute the
alleged misconduct or violation and the specific cure requested by the Company
and a reasonable opportunity to cure (at least twenty (20) days), if such
misconduct is susceptible to cure by Executive. In the event of termination for
Cause, Executive will be entitled only to payment of any earned but unpaid
compensation (Base Salary and accrued but unpaid vacation) through the
termination date, which for purposes of this subparagraph (b) will be the date
on which the notice is given. The Company will have no further obligation to pay
any compensation of any kind (including without limitation any bonus or portion
of a bonus that otherwise may have become due and payable to Executive with
respect to the year in which such termination date occurs), or severance payment
of any kind nor to make any payment in lieu of notice; provided that the
foregoing shall not affect the Company's obligations under Section 12 of this
Agreement and that certain Indemnification Agreement dated the date hereof
between the Company and Executive.

          (c) Incapacity or Death.

               (i) If Executive becomes unable, due to physical or mental
     illness or injury, to perform the essential duties of his position with or
     without reasonable accommodation for more than twelve (12) weeks in any
     twelve (12) month period during this Agreement ("Incapacity"), the Company
     has the right to terminate Executive's employment on fifteen (15) days'
     written notice. In the event of termination for Incapacity, Executive will
     be entitled to receive: (A) payment of all earned but unpaid compensation
     through the effective date of termination, as specified in the notice, and
     (B) whatever benefits to which he may be entitled pursuant to the Company's
     benefit plans; and

               (ii) Executive's employment pursuant to this Agreement shall be
     immediately terminated without notice by the Company upon the death of the
     Executive. If Executive should die while actively employed pursuant to this
     Agreement, the Company will pay to his estate or designated beneficiaries
     within sixty (60) days: (A) payment of all earned but unpaid compensation
     through the date of Executive's death, and (B) whatever benefits to which
     he or his estate may be entitled pursuant to the Company's benefit plans.

          (d) Resignation for Good Reason. Executive may terminate this
Agreement for Good Reason (as defined in this Agreement) by giving written
notice of such termination, which termination will become effective on the 30th
day following receipt. As used in this Agreement, "Good Reason" shall mean any
one of the following, provided that with respect to (A) and (B) herein, the
Company has failed to cure the occurrence within twenty (20) days of receiving
written notice from Executive specifying the event or condition constituting the
Good Reason and the specific reasonable cure requested by Executive: (A)
reduction in Executive's


                                      -5-



salary or participation in benefits, except as part of a general change in
compensation plans or benefits for all similarly situated executives; (B) any
failure by the Company to comply with a material provision of this Agreement
(other than an event described in clause (A) herein); or (C) within 180 days
after a Change in Control (as defined in this Agreement). In the event of
resignation for Good Reason, Executive will be entitled to the benefits set
forth in subsection (a), above, for a termination by the Company without Cause,
on the same conditions that apply to those benefits, specifically including, but
not limited to, the signing of the severance agreement and general release
document, attached as Exhibit C.

               As used in this Agreement, a "Change in Control" shall mean any
of the following events:

               (i) the acquisition by any person (as such term is defined in
     Section 13(c) or 14(d) of the Securities Exchange Act of 1934, as amended
     (the "1934 Act")), other than (i) a trustee or other fiduciary holding
     securities of the Company under an employee benefit plan of the Company or
     (ii) an entity in which the Company directly or indirectly beneficially
     owns 50% or more of the voting securities of such entity (an "Affiliate"),
     of any securities of the Company, immediately after which such Person has
     beneficial ownership (within the meaning of Rule 13d-3 promulgated under
     the 1934 Act) of more than 50% of (i) the outstanding shares of Common
     Stock or (ii) the combined voting power of the Company's then outstanding
     securities entitled to vote generally in the election of directors;

               (ii) the Company is a party to a merger or consolidation with a
     person other than an Affiliate which results in the holders of voting
     securities of the Company outstanding immediately before such merger or
     consolidation failing to continue to represent (either by remaining
     outstanding or being converted into voting securities of the surviving
     entity) more than 50% of the combined voting power of the then outstanding
     voting securities of the corporation resulting from such merger or
     consolidation; or

               (iii) all or substantially all of the assets of the Company are,
     in any transaction or series of transactions, sold or otherwise disposed of
     (other than to an Affiliate);

     provided, however, that in no event shall a "Change in Control" be deemed
     to have occurred for purposes of this Agreement solely (i) because the
     Company engages in an internal reorganization, which may include a transfer
     of assets to, or a merger or consolidation with, one or more Affiliates, or
     (ii) as a result of any transaction or series of transactions that has been
     approved by the Board.

          (e) Resignation for other than Good Reason. In the event that the
Executive resigns for other than Good Reason as defined above in subsection (d),
above, (i) Executive will be entitled only to payment of any earned but unpaid
compensation (Base Salary and accrued but unpaid vacation) through the
termination date and (ii) the Company will have no further obligation to pay any
compensation of any kind (including without limitation any bonus or portion of a
bonus that otherwise may have become due and payable to Executive with respect
to the year in which such termination date occurs), or severance payment of any
kind; provided that


                                      -6-



the foregoing shall not affect the Company's obligations under Section 12 of
this Agreement and that certain Indemnification Agreement dated the date hereof
between the Company and Executive.

          (f) Reaffirmation of Confidentiality Promises. As a further condition
of Executive receiving the Severance Payment and other benefits under
subsections (a)(iv)-vi), above, Executive must specifically reaffirm the
provisions of Section 6 below.

          (g) IRC Section 409A. Notwithstanding anything herein to the contrary,
to the extent that either party determines in good faith that any payment
pursuant to this Section 5 provides for a "deferral of compensation" under
Section 409A of the Internal Revenue Code, as amended ("Section 409A"), the
parties will discuss in good faith and thereafter will amend the provisions of
this Agreement to preserve the original intent of the Agreement to the extent
possible without violating the provisions of Section 409A. If final Treasury
Regulations promulgated under Section 409A permit Executive to receive the
Severance Payment set forth in Section 5(a)(iv) hereof without delaying payment
until six months following termination of Executive's employment, the parties
agree to amend the Agreement (and to make a corresponding amendment to the
severance agreement and general release attached hereto as Exhibit C) to
eliminate the six month delay and provide Executive with 12 months of Base
Salary continuation commencing on the first business day after Executive signs
the severance agreement and general release attached as Exhibit C and subject to
the other conditions in Section 5(a) hereof.

     6. PROPRIETARY INFORMATION OBLIGATIONS.

          (a) Proprietary Information and Confidentiality. Both before and
during the term of Executive's employment, Executive will have access to and
become acquainted with Company confidential and proprietary information
(together "Proprietary Information"), including but not limited to information
or plans concerning the Company's legal strategies, including the prosecution
and defense of litigation; customer relationships; personnel; sales, marketing
and financial operations and methods; trade secrets, formulae, devices; secret
inventions; processes; and other compilations of information, records and
specifications. Executive will not disclose any of the Proprietary Information
directly or indirectly, or use it in any way, either during the term of this
Agreement or at any time thereafter, except as reasonably required or
specifically requested in the course of his employment with the Company or as
authorized in writing by the Company. Notwithstanding, Proprietary Information
does not include information that is otherwise publicly known or available,
provided it has not become public as a result of a breach of this Agreement or
any other agreement to keep it confidential. It is not a breach of this
Agreement for Executive to disclose Proprietary Information pursuant to a valid
order of a court or other governmental or legal body. All legal papers, files,
records, documents, computer-recorded or electronic information, drawings,
specifications, equipment, and similar items relating to Company business,
whether prepared by Executive or otherwise coming into his possession, will
remain the Company's exclusive property and will not be removed from Company
premises under any circumstances whatsoever without the Company's prior written
consent, except when, and only for the period, necessary to carry out
Executive's duties hereunder, and if removed, will be immediately returned to
the Company on termination of employment, and Executive will keep no copies
thereof.


                                      -7-



          (b) Inventions Agreement and Assignment.

               (i) Executive hereby agrees to disclose promptly to the Company
     (or any persons designated by it) all developments, designs, creations,
     improvements, original works of authorship, formulas, processes, know-how,
     techniques and/or inventions, hereinafter referred to collectively as
     "Inventions") (i) which are made or conceived or reduced to practice by
     Executive, either alone or jointly with others, in performing his duties
     during the period of Executive's employment by the Company, that relate to
     or are useful in the present or future business of the Company; or (ii)
     which result from tasks assigned to Executive by the Company, or from
     Executive's use of the premises or other resources owned, leased or
     contracted by the Company.

               (ii) Executive agrees that all such Inventions which the Company
     in its discretion determines to be related to or useful in its business or
     its research or development, or which result from work performed by
     Executive for the Company, will be the sole and exclusive property of the
     Company and its assigns, and the Company and its assigns will have the
     right to use and/or to apply for patents, copyrights or other statutory or
     common law protections for such Inventions in any and all countries.
     Executive further agrees to assist the Company in every reasonable way (but
     at the Company's expense) to obtain and from time to time enforce patents,
     copyrights and other statutory or common law protections for such
     Inventions in any and all countries. To that end, Executive will execute
     all documents for use in applying for and obtaining such patents,
     copyrights and other statutory or common law protections therefor and
     enforcing the same, as the Company may desire, together with any
     assignments thereof to the Company or to persons or entities designated by
     the Company. Should the Company be unable to secure Executive's signature
     on any document necessary to apply for, prosecute, obtain or enforce any
     patent, copyright or other right or protection relating to any Invention,
     whether due to his mental or physical incapacity or any other cause,
     Executive hereby irrevocably designates and appoints the Company and each
     of its duly authorized officers and agents as Executive's agent and
     attorney-in-fact, to act for and in his behalf and stead, to execute and
     file any such document, and to do all other lawfully permitted acts to
     further the prosecution, issuance and enforcement of patents, copyrights or
     other rights or protections with the same force and effect as if executed
     and delivered by Executive. Executive's obligations under this subsection
     will continue beyond the termination of Executive's employment with the
     Company, but the Company will compensate Executive at a reasonable rate
     after such termination for time actually spent by Executive at the
     Company's request in providing such assistance.

               (iii) Executive hereby acknowledges that all original works of
     authorship which are made by Executive (solely or jointly with others)
     within the scope of Executive's employment which are protectable by
     copyright are "works for hire," as that term is defined in the United
     States Copyright Act (17 USCA, Section 101).

               (iv) Any provision in this Agreement requiring Executive to
     assign Executive's rights in any Invention to the Company will not apply to
     any invention that is exempt under the provisions of California Labor Code
     Section 2870, which provides:

          "(a) Any provision in an employment agreement which provides that an
          employee shall assign, or offer to assign, any of his or her


                                      -8-



          rights in an invention to his or her employer shall not apply to an
          invention that the employee developed entirely on his or her own time
          without using the employer's equipment, supplies, facilities, or trade
          secret information except for those inventions that either: (1) relate
          at the time of conception or reduction to practice of the invention to
          the employer's business, or actual or demonstrably anticipated
          research or development of the employer; or (2) result from any work
          performed by the employee for the employer. (b) To the extent a
          provision in an employment agreement purports to require an employee
          to assign an invention otherwise excluded from being required to be
          assigned under subdivision (a), the provision is against the public
          policy of this state and is unenforceable."

          (c) Non-Solicitation, Non-Interference. While employed by the Company,
and for twelve months thereafter, Executive agrees not to (i) solicit, attempt
to solicit or accept business from, either directly or indirectly, any vendor,
customer, client or supplier of the Company (including affiliates) which has or
could reasonably be expected to have a material adverse effect on such vendor's,
customer's, client's or supplier's relationship with the Company; or (ii) induce
or attempt to induce any then existing employee or contractor to leave their
employment with or service to the Company (including affiliates), or to employ
or seek to employ any such person who was employed by or a consultant to the
Company during the preceding three (3) months, provided that the latter
restriction shall not apply with respect to any person involuntarily terminated
by the Company, provided further that this exception shall not release any such
person from his/her obligations to the Company (including affiliates).

          (d) Non-competition, No Adverse Representation. Executive agrees that
during the term of employment, and for the period of time equal to the months of
pay constituting the Severance Payment thereafter, he will not, without the
Company's prior written consent, directly or indirectly, be employed by, be
connected with, lend his name to or have an interest of any kind in, whether as
an employee, consultant, officer, director, partner, stockholder, joint
venturer, or otherwise, any person or entity owning, managing, controlling,
operating, or otherwise participating or assisting in a Restricted Business. For
purposes of this Agreement, Restricted Business is defined as electric retail
aggregation. Executive's agreement not to engage in any Restricted Business
covers (i) during his employment by the Company, any location and (ii) after
Executive's employment has ended, any county in which the Company is conducting
or specifically planning to conduct business or producing, marketing,
distributing or selling any of its products or services; provided, however, that
the foregoing is not intended to prevent Executive from being a stockholder of
less than one percent of the issued and outstanding securities of a corporation
which has a class of securities publicly traded on an exchange or in the
over-the-counter market. In addition, Executive shall not accept any subsequent
employment as an attorney for any person, firm or entity that is adverse to the
Company, as this term is used in the rules of professional conduct governing
attorneys licensed to practice in California, unless the Company has consented
to such employment in advance.

          (e) Remedies for Breach. Executive acknowledges that any breach by
Executive of this Section 6 would cause the Company irreparable injury and
damage for which


                                      -9-



monetary damages are inadequate. Accordingly, in the event of a breach or a
threatened breach of this Section 6, the Company will be entitled to seek an
injunction restraining such breach. Nothing contained herein will be construed
as prohibiting the Company from pursuing any other remedy available to the
Company for such breach or such threatened breach. Executive has carefully read
and considered these restrictions and agrees they are fair and reasonable
restrictions on Executive and are reasonably required for the protection of the
interests of the Company and its attorney-client privileged information.
Executive agrees not to circumvent the spirit of these restrictions by
attempting to accomplish indirectly what Executive is otherwise restricted from
doing directly.

          (f) Return of Materials. In the event of termination of Executive's
employment for any reason, Executive will promptly deliver to the Company all
Company equipment (including, without limitation, any cellular phones,
beeper/pagers, computer hardware and software, fax machines and other tools of
the trade) and all originals and copies of all documents, including without
limitation, all books, customer lists, forms, documents supplied by customers,
records, product lists, writings, manuals, reports, financial documents and
other documents or property in Executive's possession or control, which relate
to the Company's business in any way whatsoever, and in particular to customers
of the Company, or which may be considered to constitute or contain Confidential
Information as defined herein, and Executive will neither retain, reproduce, nor
distribute copies thereof (other than copies of Executive's rolodex or similar
address and telephone directories).

     7. INTERPRETATION, GOVERNING LAW AND EXCLUSIVE FORUM. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of California (excluding any that mandate the use of
another jurisdiction's laws). Any arbitration (unless otherwise mutually
agreed), litigation or similar proceeding with respect to such matters only may
be brought within California, and all parties to this Agreement consent to
California's jurisdiction.

     8. ENTIRE AGREEMENT. Except for Executive's Stock Option and Restricted
Stock Agreements and his Indemnification Agreement (the form of each agreement
as set forth as an exhibit to this Agreement), all oral or written agreements or
representations, express or implied, with respect to the subject matter of this
Agreement are set forth in this Agreement.

     9. SEVERABILITY. In the event that one or more of the provisions contained
in this Agreement are held to be invalid, illegal or unenforceable in any
respect by a court of competent jurisdiction, such holding shall not impair the
validity, legality or enforceability of the remaining provisions herein.

     10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and shall
inure to the benefit of, Executive and his estate, but Executive may not assign
or pledge this Agreement or any rights arising under it, except to the extent
permitted under the terms of the benefit plans in which he participates. The
Company may not assign this Agreement to any affiliate or successor without
Executive's prior written consent.

     11. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be given by hand delivery, facsimile,
telecopy, overnight courier


                                      -10-



service, or by United States certified or registered mail, return receipt
requested. Each such notice, request, demand or other communication shall be
effective (i) if delivered by hand or by overnight courier service, when
delivered at the address specified in this Section 11; (ii) if given by
facsimile or telecopy, when such facsimile or telecopy is transmitted to the
facsimile or telecopy number specified in this Section 11 and confirmation is
received if during normal business hours on a business day, otherwise, on the
next business day; and (iii) if given by certified or registered mail, three
days after the mailing thereof. Notices shall be addressed to the parties as
follows (or at such other address or fax number as either party may from time to
time specify in writing by giving notice as provided herein):

     If to the Company: Commerce Energy Group, Inc.
                        600 Anton Boulevard
                        Suite 2000
                        Costa Mesa, California 92626
                        Attn: Chief Executive Officer
                        Fax No. (714) 481-6567

     If to Executive:   Mr. Erik A. Lopez, Sr.
                        600 Anton Boulevard
                        Suite 2000
                        Costa Mesa, California 92626
                        Fax No: (714) 481-6589

     12. INDEMNIFICATION AND INSURANCE. The Company will indemnify Executive to
the fullest extent permitted by the laws of the State of Delaware, as more fully
described in the Indemnification Agreement dated March 26, 2007, the form of
which is attached hereto as Exhibit D. While employed by the Company, and
thereafter to the extent provided to the Company's other senior executives, the
Company shall, at its cost, provide insurance coverage to Executive at least to
the same extent as the other senior executives of the Company with respect to
(a) officers and directors liability, (b) errors and omissions and (c) general
liability. The foregoing rights conferred upon Executive shall not be exclusive
of any other right which Executive may have or hereafter may acquire under any
statute, provision of the certificate of incorporation or bylaws of the Company,
agreement, vote of the stockholders or directors or otherwise.

     13. DISPUTE RESOLUTION. The parties hereto agree that all disputes, claims
or controversies between them and between Executive and any of the Company's
affiliated entities and the successor of all such entities, and any director,
shareholder or employee of the Company or its affiliated entities who agrees to
the dispute resolution procedures in this Section 13, including any dispute,
claim or controversy arising from or otherwise in connection with this Agreement
and/or Executive's employment with the Company, will be resolved as follows:

          (a) Prior to initiating any other proceeding, the complaining party
will provide the other party with a written statement of the claim identifying
any supporting witnesses or documents and the requested relief. The responding
party shall within forty-five (45) days furnish a statement of the relief, if
any, that it is willing to provide, and identify supporting witnesses or
documents.


                                      -11-



          (b) If the matter is not resolved by the exchange of statements of
claim and statements of response as provided herein, the parties shall submit
the dispute to non-binding mediation, the cost of the mediator to be paid by the
Company, before a mediator and/or service to be jointly selected by the parties.
Each party will bear its own attorney's fees and witness fees.

          (c) If the parties cannot agree on a mediator and/or if the matter is
not otherwise resolved by mediation, any controversy or claim arising out of or
relating to this Agreement or breach thereof shall be settled by final and
binding arbitration in the county in which Executive last worked, or elsewhere
as mutually agreed by the parties, by a single arbitrator pursuant to the
Employment Dispute Rules of Judicial Arbitration and Mediation Services, Inc.
("JAMS"), or such other service as the parties may mutually agree upon. The
parties may conduct discovery to the extent permitted in a court of law; the
arbitrator will render an award together with a written opinion indicating the
bases for such opinion; and the arbitrator will have full authority to award all
remedies that would be available in court. Judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction thereof. Each
party shall bear his/its own attorney's fees and costs, unless the claim is
based on a statute that provides otherwise. The Company will pay the
arbitrator's fees and any administrative expenses of the arbitration service.

          (d) EXECUTIVE AND THE COMPANY AGREE THAT THIS ARBITRATION PROCEDURE
WILL BE THE EXCLUSIVE MEANS OF REDRESS FOR ANY DISPUTES BETWEEN THEM, INCLUDING
ANY RELATING TO OR ARISING FROM EXECUTIVE'S EMPLOYMENT WITH THE COMPANY OR
TERMINATION THEREFROM, DISPUTES OVER ALLEGEDLY UNPAID WAGES, BREACH OF CONTRACT
OR TORT, VIOLATION OF PUBLIC POLICY, RIGHTS PROVIDED BY FEDERAL, STATE OR LOCAL
STATUTES, REGULATIONS, ORDINANCES, AND COMMON LAW, LAWS THAT PROHIBIT
DISCRIMINATION BASED ON ANY PROTECTED CLASSIFICATION, AND ANY OTHER STATUTES OR
LAWS RELATING TO EXECUTIVE'S RELATIONSHIP WITH THE COMPANY. THE FOREGOING
NOTWITHSTANDING, CLAIMS FOR WORKERS' COMPENSATION BENEFITS OR UNEMPLOYMENT
INSURANCE, OR ANY OTHER CLAIMS WHERE MANDATORY ARBITRATION IS PROHIBITED BY LAW,
ARE NOT COVERED BY THIS ARBITRATION PROVISION. THE PARTIES EXPRESSLY WAIVE THE
RIGHT TO A JURY TRIAL, AND AGREE THAT THE ARBITRATOR'S AWARD SHALL BE FINAL AND
BINDING ON BOTH PARTIES. THIS ARBITRATION PROVISION IS TO BE CONSTRUED AS
BROADLY AS IS PERMISSIBLE UNDER APPLICABLE LAW.

     14. REPRESENTATIONS. Each person executing this Agreement hereby represents
and warrants on behalf of himself and of the entity/individual on whose behalf
he is executing the Agreement that he is authorized to represent and bind the
entity/individual on whose behalf he is executing the Agreement. Executive
specifically represents and warrants to the Company that: he is not now under
any contractual or other obligations that are inconsistent or in conflict with
this Agreement or that would prevent, limit or impair Executive's performance of
his obligations under this Agreement.


                                      -12-



     15. AMENDMENTS AND WAIVERS. No provisions of this Agreement may be
modified, waived, or discharged except by a written document signed by Executive
and a duly authorized Company officer. Thus, for example, promotions,
commendations, and/or bonuses shall not, by themselves, modify, amend or extend
this Agreement. A waiver of any conditions or provisions of this Agreement in a
given instance shall not be deemed a waiver of such conditions or provisions at
any other time.

     16. GOLDEN PARACHUTE LIMITATION. Executive agrees that the payments and
benefits under this Agreement, and all other contracts, arrangements or programs
that apply to him, shall not, in the aggregate, exceed the maximum amount that
may be paid to Executive without triggering golden parachute penalties under
Section 280G and related provisions of the Internal Revenue Code, as determined
in good faith by the Company's independent auditors. If any benefits must be cut
back to avoid triggering such penalties, Executive's benefits shall be cut back
in the priority order reasonably designated by the Company. If an amount in
excess of the limits set forth in this Section 16 is paid to Executive,
Executive agrees to repay the excess amount to the Company upon demand. The
Company and Executive agree to cooperate with each other in connection with any
administrative or judicial proceedings concerning the existence or amount of
golden parachute penalties with respect to payments or benefits Executive
receives.

     17. U.S. CITIZENSHIP AND IMMIGRATION SERVICES. Executive agrees to timely
file all documents required by the Department of Homeland Security to verify his
identity and lawful employment in the United States.

     18. WITHHOLDING TAXES. The Company may withhold from any salary and
benefits payable under this Agreement all federal, state, city and other taxes
or amounts as shall be determined by the Company to be required to be withheld
pursuant to applicable laws or governmental regulations or rulings.

     19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute the same instrument.

EXECUTIVE ACKNOWLEDGES THAT ALL UNDERSTANDINGS AND AGREEMENTS BETWEEN THE
COMPANY AND HIM RELATING TO THE SUBJECTS COVERED IN THIS AGREEMENT ARE CONTAINED
IN IT (INCLUDING THE AGREEMENTS SET FORTH AS EXHIBITS AND THE COMPANY'S BONUS
PROGRAM) AND THAT HE HAS ENTERED INTO THIS AGREEMENT VOLUNTARILY AND NOT IN
RELIANCE ON ANY PROMISES OR REPRESENTATIONS BY THE COMPANY OTHER THAN THOSE
CONTAINED IN THIS AGREEMENT.

EXECUTIVE FURTHER ACKNOWLEDGES THAT HE HAS CAREFULLY READ THIS AGREEMENT
(INCLUDING THE AGREEMENTS SET FORTH AS EXHIBITS), THAT HE UNDERSTANDS ALL OF
SUCH AGREEMENTS, AND THAT HE HAS BEEN GIVEN THE OPPORTUNITY TO DISCUSS SUCH
AGREEMENTS WITH HIS PRIVATE LEGAL COUNSEL AND HAS AVAILED HIMSELF OF THAT
OPPORTUNITY TO THE EXTENT HE WISHED TO DO SO. EXECUTIVE UNDERSTANDS THAT BY
SIGNING THIS AGREEMENT HE IS GIVING UP HIS RIGHT TO A JURY TRIAL.


                                      -13-



     IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.

                                        "COMPANY"

                                        COMMERCE ENERGY GROUP, INC.


                                        By: /S/ STEVEN S. BOSS
                                            ------------------------------------
                                        Name: Steven S. Boss
                                        Title: Chief Executive Officer


                                        "EXECUTIVE"


                                        /S/ ERIK A. LOPEZ, SR.
                                        ----------------------------------------
                                        ERIK A. LOPEZ, SR.


                                      -14-



                                    EXHIBIT A

                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

                          STOCK OPTION AWARD AGREEMENT
                              (FOR U.S. EMPLOYEES)

                                   ----------

                                   AWARD NO. 1

     You (the "Participant") are hereby awarded the following stock option (the
"Option") to purchase Shares of Commerce Energy Group, Inc. (the "Company"),
subject to the terms and conditions set forth in this Stock Option Award
Agreement (the "Award Agreement") and in the Commerce Energy Group, Inc. 2006
Stock Incentive Plan (the "Plan"), which is attached hereto as Exhibit A. A
summary of the Plan appears in its Prospectus, which is attached as Exhibit B.
You should carefully review these documents, and consult with your personal
financial advisor, before exercising this Option.

     By executing this Award Agreement, you agree to be bound by all of the
Plan's terms and conditions as if they had been set out verbatim in this Award
Agreement. In addition, you recognize and agree that all determinations,
interpretations, or other actions respecting the Plan and this Award Agreement
will be made by the Board of Directors (the "Board") of Commerce Energy Group,
Inc. (the "Company") or any Committee appointed by the Board to administer the
Plan, and shall (in the absence of manifest bad faith or fraud) be final,
conclusive and binding on all parties, including you and your heirs and
representatives. Capitalized terms are defined in the Plan or in this Award
Agreement.

1. VARIABLE TERMS. This Option shall have, and be interpreted according to, the
following terms, subject to the provisions of the Plan in all instances:

                                   
Name of Participant:                  ERIK A. LOPEZ, SR.

Type of Stock Option:                 [ ]  Incentive Stock Option (ISO)(1)

                                      [X]  Non-Incentive Stock Option(2)

Number of Shares subject to Option:   45,000

Option Exercise Price per Share:      $2.56

Grant Date:                           March 27, 2007

Reverse Vesting (per Plan Section):   [ ]  Allowed in accordance with Section
                                           6 of the Plan.

                                      [X]  Not allowed.



- ----------
(1)  If an ISO is awarded to a person owning more than 10% of the voting power
     of all classes of stock of the Company or of any Subsidiary, then the term
     of the Option cannot exceed 5 years and the exercise price must be at least
     110% of the Fair Market Value (100% for any other employee who is receiving
     ISO awards).

(2)  The exercise price of a non-ISO must be at least 100% of the Fair Market
     Value.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Option Award Agreement for Employees
Page 2


2. VESTING SCHEDULE: Establishes the Participant's rights to exercise this
Option with respect to the Number of Shares stated above, subject to
acceleration per Section 3 below and per your employment agreement with the
Company dated March 26, 2007 and to any shareholder approval requirement set
forth in the Plan.

                
                   [ ]  ___% on Grant Date.

                   [X]  15,000 shares on each of the first three
                        anniversary dates of the Participant's Continuous
                        Service after the Participant's first date of
                        employment, March 26, 2008, March 26, 2009 and
                        March 26, 2010.

Lifetime Transfer: [ ]  Allowed pursuant to Section 9 below only for
                        Non-Incentive Stock Option.

Expiration Date:   [X]  6 years (1-9) after Grant Date; or

                   [ ]  10 years after Grant Date



3. ACCELERATED VESTING; CHANGE IN CORPORATE CONTROL. To the extent you have not
previously vested in your rights with respect to this Award, your Award will
become -

     [ ]  ___% vested if your Continuous Service ends due to your death or
          "disability" within the meaning of Section 409A of the Code;

     [ ]  ___% vested if your Continuous Service ends due to your retirement at
          or after you have attained the age of ___ and completed at least ___
          full years of Continuous Service;

     [ ]  according to the following schedule if your Continuous Service ends
          due to an Involuntary Termination that occurs within the one year
          period following a Change in Control:



Date on which Your Involuntary Termination        Portion of Your Award
  Occurs (by reference to Date of Award)     As to which Vesting Accelerates
- ------------------------------------------   -------------------------------
                                          
      Before 1st Anniversary                                 0%
      Between 1st and 2nd Anniversary                      ___%
      After 2nd Anniversary                                ___%


4. TERM OF OPTION. The term of the Option will expire at 5:00 p.m. (P.D.T. or
P.S.T., as applicable) on the Expiration Date.

5. MANNER OF EXERCISE. The Option shall be exercised in the manner set forth in
the Plan, using the exercise form attached hereto as Exhibit C. The amount of
Shares for which the Option may be exercised is cumulative; that is, if you fail
to exercise the Option for all of the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Option Award Agreement for Employees
Page 3


Shares vested under the Option during any period set forth above, then any
Shares subject to the Option that are not exercised during such period may be
exercised during any subsequent period, until the expiration or termination of
the Option pursuant to Sections 2 and 7 of this Award Agreement and the terms of
the Plan. Fractional Shares may not be purchased.

6. SPECIAL ISO PROVISIONS. If designated as an ISO, this Option shall be treated
as an ISO to the extent allowable under Section 422 of the Code, and shall
otherwise be treated as a Non-ISO. If you sell or otherwise dispose of Shares
acquired upon the exercise of an ISO within 1 year from the date such Shares
were acquired or 2 years from the Grant Date, you agree to deliver a written
report to the Company within 10 days following the sale or other disposition of
such Shares detailing the net proceeds of such sale or disposition.

7. TERMINATION OF CONTINUOUS SERVICE. If your Continuous Service with the
Company and/or its Affiliates (the "Company Group") is terminated for any
reason, this Option shall terminate on the date on which you cease to have any
right to exercise the Option pursuant to the terms and conditions set forth in
Section 6 of the Plan.

8. LONG-TERM CONSIDERATION FOR AWARD. The Participant recognizes and agrees that
the Company's key consideration in granting this Award is securing the long-term
commitment of the Participant to serve as an officer of the Company who will
advance and promote the business interests and objectives of the Company Group.
Accordingly, the Participant agrees that this Award shall be subject to the
terms and conditions set forth in Section 25 of the Plan (relating to the
termination, rescission and recapture if you violate certain commitments made
therein to the Company Group), as well as to the following terms and conditions
as material and indivisible consideration for this Award:

          (a) Fiduciary Duty. During his or her employment with the Company
Group the Participant shall devote his or her full energies, abilities,
attention and business time to the performance of his or her job
responsibilities and shall not engage in any activity which conflicts or
interferes with, or in any way compromises, his or her performance of such
responsibilities.

          (b) Confidential Information. The Participant recognizes that by
virtue of his or her employment with the Company Group, he or she will be
granted otherwise prohibited access to confidential information and proprietary
data which are not known, and not readily accessible to the competitors of the
Company Group. This information (the "Confidential Information") includes, but
is not limited to, current and prospective customers; the identity of key
contacts at such customers; customers' particularized preferences and needs;
marketing strategies and plans; financial data; personnel data; compensation
data; proprietary procedures and processes; and other unique and specialized
practices, programs and plans of the Company Group and their respective
customers and prospective customers. The Participant recognizes that this
Confidential Information constitutes a valuable property of the Company Group,
developed over a significant period of time and at substantial expense.
Accordingly, the Participant agrees that he or she shall not, at any time during
or after his or her employment with the Company Group, divulge such Confidential
Information or make use of it for his or her own purposes or the purposes of any
person or entity other than the Company Group.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Option Award Agreement for Employees
Page 4


          (c) Non-Solicitation of Customers. The Participant recognizes that by
virtue of his or her employment with the Company Group he or she will be
introduced to and involved in the solicitation and servicing of existing
customers of the Company Group and new customers obtained by the Company Group
during his or her employment. The Participant understands and agrees that all
efforts expended in soliciting and servicing such customers shall be for the
permanent benefit of the Company Group. The Participant further agrees that
during his or her employment with the Company Group the Participant will not
engage in any conduct which could in any way jeopardize or disturb any of the
customer relationships of the Company Group. The Participant also recognizes the
legitimate interest of the Company Group in protecting, for a reasonable period
of time after his or her employment with the Company Group, the customers of the
Company Group. Accordingly, the Participant agrees that, for a period beginning
on the date hereof and ending one (1) year after termination of Participant's
employment with the Company Group, regardless of the reason for such
termination, the Participant shall not, directly or indirectly, without the
prior written consent of the Chief Executive Officer of the Company, market,
offer, sell or otherwise furnish any products or services similar to, or
otherwise competitive with, those offered by the Company Group to any customer
of the Company Group.

          (d) Non-Solicitation of Employees. The Participant recognizes the
substantial expenditure of time and effort which the Company Group devotes to
the recruitment, hiring, orientation, training and retention of its employees.
Accordingly, the Participant agrees that, for a period beginning on the date
hereof and ending two (2) years after termination of Participant's employment
with the Company Group, regardless of the reason for such termination, the
Participant shall not, directly or indirectly, for himself or herself or on
behalf of any other person or entity, solicit, offer employment to, hire or
otherwise retain the services of any employee of the Company Group.

          (e) Survival of Commitments; Potential Recapture of Award and
Proceeds. The Participant acknowledges and agrees that the terms and conditions
of this Section regarding confidentiality and non-solicitation shall survive
both (i) the termination of Participant's employment with the Company Group for
any reason, and (ii) the termination of the Plan, for any reason. The
Participant acknowledges and agrees that the grant of Options in this Award
Agreement is just and adequate consideration for the survival of the
restrictions set forth herein, and that the Company Group may pursue any or all
of the following remedies if the Participant either violates the terms of this
Section or succeeds for any reason in invalidating any part of it (it being
understood that the invalidity of any term hereof would result in a failure of
consideration for the Award):

          (i)  declaration that the Award is null and void and of no further
               force or effect;

          (ii) recapture of any cash paid or Shares issued to the Participant,
               or any designee or beneficiary of the Participant, pursuant to
               the Award;

          (iii) recapture of the proceeds, plus reasonable interest, with
               respect to any Shares that are both issued pursuant to this Award
               and sold or otherwise



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Option Award Agreement for Employees
Page 5


               disposed of by the Participant, or any designee or beneficiary of
               the Participant.

The remedies provided above are not intended to be exclusive, and the Company
Group may seek such other remedies as are provided by law, including equitable
relief.

          (f) Acknowledgement. The Participant acknowledges and agrees that his
or her adherence to the foregoing requirements will not prevent him or her from
engaging in his or her chosen occupation and earning a satisfactory livelihood
following the termination of his or her employment with the Company Group.

9. DESIGNATION OF BENEFICIARY. Notwithstanding anything to the contrary
contained herein or in the Plan, following the execution of this Award
Agreement, you may expressly designate a beneficiary (the "Beneficiary") to his
or her interest in the Option awarded hereby. You shall designate the
Beneficiary by completing and executing a designation of beneficiary agreement
substantially in the form attached hereto as Exhibit D (the "Designation of
Beneficiary") and delivering an executed copy of the Designation of Beneficiary
to the Company.

10. RESTRICTIONS ON TRANSFER. This Award Agreement may not be sold, pledged, or
otherwise transferred without the prior written consent of the Committee.
Notwithstanding the foregoing, the Participant may transfer this Option if
allowed under Section 1 for a Non-Incentive Stock Option (i) by instrument to an
inter vivos or testamentary trust (or other entity) in which each beneficiary is
a permissible gift recipient, as such is set forth in subsection (ii) of this
Section, or (ii) by gift to charitable institutions or by gift or transfer for
consideration to any of the following relatives of the Participant (or to an
inter vivos trust, testamentary trust or other entity primarily for the benefit
of the following relatives of the Participant): any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former spouse, domestic
partner, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive
relationships. Any transferee of the Participant's rights shall succeed and be
subject to all of the terms of this Award Agreement and the Plan.

11. TAXES. By signing this Award Agreement, you acknowledge that you shall be
solely responsible for the satisfaction of any taxes that may arise (including
taxes arising under Sections 409A or 4999 of the Code), and that neither the
Company Group nor the Administrator shall have any obligation whatsoever to pay
such taxes. Notwithstanding anything to the contrary herein, upon exercise of an
Option, certificates for Shares shall not be delivered to you unless you have
made arrangements satisfactory to the Committee to satisfy tax-withholding
obligations.

12. NOTICES. Any notice or communication required or permitted by any provision
of this Award Agreement to be given to you shall be in writing and shall be
delivered personally or sent by certified mail, return receipt requested,
addressed to you at the last address that the Company had for you on its
records. Each party may, from time to time, by notice to the other party hereto,
specify a new address for delivery of notices relating to this Award Agreement.
Any such notice shall be deemed to be given as of the date such notice is
personally delivered or properly mailed.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Option Award Agreement for Employees
Page 6


13. BINDING EFFECT. Except as otherwise provided in this Award Agreement or in
the Plan, every covenant, term and provision of this Award Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legatees, legal representatives, successors, transferees, and assigns.

14. MODIFICATIONS. This Award Agreement may be modified or amended at any time,
in accordance with Section 15 of the Plan and provided that you must consent in
writing to any modification that adversely alters or impairs any rights or
obligations under this Award Agreement.

15. HEADINGS. Section and other headings contained in this Award Agreement are
for reference purposes only and are not intended to describe, interpret, define
or limit the scope or intent of this Award Agreement or any provision hereof.

16. SEVERABILITY. Every provision of this Award Agreement and of the Plan is
intended to be severable. If any term hereof is illegal or invalid for any
reason, such illegality or invalidity shall not affect the validity or legality
of the remaining terms of this Award Agreement.

17. COUNTERPARTS. This Award Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.

18. PLAN GOVERNS. By signing this Award Agreement, you acknowledge that you have
received a copy of the Plan and that your Award Agreement is subject to all the
provisions contained in the Plan, the provisions of which are made a part of
this Award Agreement and your Award is subject to all interpretations,
amendments, rules and regulations which from time to time may be promulgated and
adopted pursuant to the Plan. In the event of a conflict between the provisions
of this Award Agreement and those of the Plan, the provisions of the Plan shall
control.

19. GOVERNING LAW. The laws of the State of Delaware shall govern the validity
of this Award Agreement, the construction of its terms, and the interpretation
of the rights and duties of the parties hereto.

20. NOT A CONTRACT OF EMPLOYMENT. By executing this Award Agreement you
acknowledge and agree that (i) any person who is terminated before full vesting
of an award, such as the one granted to you by this Award Agreement, could claim
that he or she was terminated to preclude vesting; (ii) you promise never to
make such a claim; (iii) nothing in this Award Agreement or the Plan confers on
you any right to continue an employment, service or consulting relationship with
the Company Group, nor shall it affect in any way your right or the right of the
Company Group, as applicable, to terminate your employment, service, or
consulting relationship at any time, with or without Cause; and (iv) the Company
would not have granted this Award to you but for these acknowledgements and
agreements.

21. EMPLOYMENT AGREEMENT PROVISION By executing this Award, you acknowledge and
agree that your rights upon a termination of employment before full vesting of
this Award will be



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Option Award Agreement for Employees
Page 7


determined under Section 5 of your employment agreement with the Company dated
as of March 26, 2007.

22. INVESTMENT PURPOSES. You acknowledge that you are receiving your Options for
investment purposes only and without any present intention of selling or
distributing the Options or the Shares underlying such Options.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Option Award Agreement for Employees
Page 8


     BY YOUR SIGNATURE BELOW, along with the signature of the Company's
representative, you and the Company agree that the Option is awarded under and
governed by the terms and conditions of this Award Agreement and the Plan.

                                        COMMERCE ENERGY GROUP, INC.


                                        By:
                                            ------------------------------------
                                        Name: Steven S. Boss
                                        Title: Chief Executive Officer


                                        PARTICIPANT

                                        The undersigned Participant hereby
                                        accepts the terms of this Award
                                        Agreement and the Plan.


                                        By:
                                            ------------------------------------
                                        Name of Participant: Erik A. Lopez, Sr.



                                                                       EXHIBIT A

                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

1. ESTABLISHMENT, PURPOSE, AND TYPES OF AWARDS

     Commerce Energy Group, Inc. (the "Company") hereby establishes this
equity-based incentive compensation plan to be known as the "Commerce Energy
Group, Inc. 2006 Stock Incentive Plan" (hereinafter referred to as the "Plan"),
in order to provide incentives and awards to select employees, directors,
consultants, and advisors of the Company and its Affiliates.

     The Plan permits the granting of the following types of awards ("Awards"),
according to the Sections of the Plan listed here:

     Section 6  Options
     Section 7  Share Appreciation Rights
     Section 8  Restricted Shares, Restricted Share Units, and Unrestricted
                Shares
     Section 9  Deferred Share Units
     Section 10 Performance Awards

     The Plan is not intended to affect and shall not affect any stock options,
equity-based compensation, or other benefits that the Company or its Affiliates
may have provided, or may separately provide in the future pursuant to any
agreement, plan, or program that is independent of this Plan.

2. DEFINED TERMS

     Terms in the Plan that begin with an initial capital letter have the
defined meaning set forth in APPENDIX A, unless defined elsewhere in this Plan
or the context of their use clearly indicates a different meaning.

3. SHARES SUBJECT TO THE PLAN

     Subject to the provisions of Section 13 of the Plan, the maximum number of
Shares that the Company may issue for all Awards is 1,453,334 Shares, provided
that the Company shall not make additional awards under the Commonwealth Energy
Corporation 1999 Equity Incentive Plan, as amended and assumed by Commerce
Energy Group, Inc. For all Awards, the Shares issued pursuant to the Plan may be
authorized but unissued Shares, or Shares that the Company has reacquired or
otherwise holds in treasury.

     Shares that are subject to an Award that for any reason expires, is
forfeited, is cancelled, or becomes unexercisable, and Shares that are for any
other reason not paid or delivered under the Plan shall again, except to the
extent prohibited by Applicable Law, be available for subsequent Awards under
the Plan. In addition, the Committee may make future Awards with respect to
Shares that the Company retains from otherwise delivering pursuant to an Award
either (i) as payment of the exercise price of an Award, or (ii) in order to
satisfy the withholding or employment taxes due upon the grant, exercise,
vesting or distribution of an Award. Notwithstanding the foregoing, but subject
to adjustments pursuant to Section 13 below, the number of Shares that are
available for ISO Awards shall be determined, to the extent required under
applicable tax laws, by reducing the number of Shares designated in the
preceding paragraph by the number of Shares granted pursuant to Awards (whether
or not Shares are issued pursuant to such Awards), provided that any Shares that
are either issued or purchased under the Plan and forfeited back to the Plan, or
surrendered in payment of the Exercise Price for an Award shall be available for
issuance pursuant to future ISO Awards.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 2


4. ADMINISTRATION

     (a) General. The Committee shall administer the Plan in accordance with its
terms, provided that the Board may act in lieu of the Committee on any matter.
The Committee shall hold meetings at such times and places as it may determine
and shall make such rules and regulations for the conduct of its business as it
deems advisable. In the absence of a duly appointed Committee or if the Board
otherwise chooses to act in lieu of the Committee, the Board shall function as
the Committee for all purposes of the Plan.

     (b) Committee Composition. The Board shall appoint the members of the
Committee. If and to the extent permitted by Applicable Law, the Committee may
authorize one or more Reporting Persons (or other officers) to make Awards to
Eligible Persons who are not Reporting Persons (or other officers whom the
Committee has specifically authorized to make Awards). The Board may at any time
appoint additional members to the Committee, remove and replace members of the
Committee with or without Cause, and fill vacancies on the Committee however
caused.

     (c) Powers of the Committee. Subject to the provisions of the Plan, the
Committee shall have the authority, in its sole discretion:

          (i) to determine Eligible Persons to whom Awards shall be granted from
     time to time and the number of Shares, units, or SARs to be covered by each
     Award;

          (ii) to determine, from time to time, the Fair Market Value of Shares;

          (iii) to determine, and to set forth in Award Agreements, the terms
     and conditions of all Awards, including any applicable exercise or purchase
     price, the installments and conditions under which an Award shall become
     vested (which may be based on performance), terminated, expired, cancelled,
     or replaced, and the circumstances for vesting acceleration or waiver of
     forfeiture restrictions, and other restrictions and limitations;

          (iv) to approve the forms of Award Agreements and all other documents,
     notices and certificates in connection therewith which need not be
     identical either as to type of Award or among Participants;

          (v) to construe and interpret the terms of the Plan and any Award
     Agreement, to determine the meaning of their terms, and to prescribe,
     amend, and rescind rules and procedures relating to the Plan and its
     administration; and

          (vi) in order to fulfill the purposes of the Plan and without amending
     the Plan, modify, cancel, or waive the Company's rights with respect to any
     Awards, to adjust or to modify Award Agreements for changes in Applicable
     Law, and to recognize differences in foreign law, tax policies, or customs;
     and

          (vii) to make all other interpretations and to take all other actions
     that the Committee may consider necessary or advisable to administer the
     Plan or to effectuate its purposes.

     Subject to Applicable Law and the restrictions set forth in the Plan, the
Committee may delegate administrative functions to individuals who are Reporting
Persons, officers, or Employees of the Company or its Affiliates.

     (d) Deference to Committee Determinations. The Committee shall have the
discretion to interpret or construe ambiguous, unclear, or implied (but omitted)
terms in any fashion it deems to be appropriate in its sole discretion, and to
make any findings of fact needed in the administration of the Plan or Award
Agreements. The Committee's prior exercise of its discretionary authority shall
not obligate it to exercise its authority in a like fashion thereafter. The
Committee's interpretation and construction of any provision of the Plan, or of
any Award or Award Agreement, shall be final, binding, and conclusive. The
validity of any such interpretation, construction, decision or finding of fact
shall not be given de novo review if challenged in court, by arbitration, or in
any other forum, and shall be upheld unless clearly made in bad faith or
materially affected by fraud.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 3


     (e) No Liability; Indemnification. Neither the Board nor any Committee
member, nor any Person acting at the direction of the Board or the Committee,
shall be liable for any act, omission, interpretation, construction or
determination made in good faith with respect to the Plan, any Award or any
Award Agreement. The Company and its Affiliates shall pay or reimburse any
member of the Committee, as well as any Director, Employee, or Consultant who
takes action in connection with the Plan, for all expenses incurred with respect
to the Plan, and to the full extent allowable under Applicable Law shall
indemnify each and every one of them for any claims, liabilities, and costs
(including reasonable attorney's fees) arising out of their good faith
performance of duties under the Plan. The Company and its Affiliates may obtain
liability insurance for this purpose.

5. ELIGIBILITY

     (a) General Rule. The Committee may grant ISOs only to Employees (including
officers who are Employees) of the Company or an Affiliate that is a "parent
corporation" or "subsidiary corporation" within the meaning of Section 424 of
the Code, and may grant all other Awards to any Eligible Person. A Participant
who has been granted an Award may be granted an additional Award or Awards if
the Committee shall so determine, if such person is otherwise an Eligible Person
and if otherwise in accordance with the terms of the Plan.

     (b) Grant of Awards. Subject to the express provisions of the Plan, the
Committee shall determine from the class of Eligible Persons those individuals
to whom Awards under the Plan may be granted, the number of Shares subject to
each Award, the price (if any) to be paid for the Shares or the Award and, in
the case of Performance Awards, in addition to the matters addressed in Section
10 below, the specific objectives, goals and performance criteria that further
define the Performance Award. Each Award shall be evidenced by an Award
Agreement signed by the Company and, if required by the Committee, by the
Participant. The Award Agreement shall set forth the material terms and
conditions of the Award established by the Committee, and each Award shall be
subject to the terms and conditions set forth in Sections 23, 24, and 25 unless
otherwise specifically provided in an Award Agreement.

     (c) Limits on Awards. During any calendar year, no Participant may receive
Options and SARs that relate to more than 1,000,000 Shares. The Committee will
adjust this limitation pursuant to Section 13 below.

     (d) Replacement Awards. Subject to Applicable Laws (including any
associated Shareholder approval requirements), the Committee may, in its sole
discretion and upon such terms as it deems appropriate, require as a condition
of the grant of an Award to a Participant that the Participant surrender for
cancellation some or all of the Awards that have previously been granted to the
Participant under this Plan or otherwise. An Award that is conditioned upon such
surrender may or may not be the same type of Award, may cover the same (or a
lesser or greater) number of Shares as such surrendered Award, may have other
terms that are determined without regard to the terms or conditions of such
surrendered Award, and may contain any other terms that the Committee deems
appropriate. In the case of Options, these other terms may not involve an
Exercise Price that is lower than the Exercise Price of the surrendered Option
unless the Company's shareholders approve the grant itself or the program under
which the grant is made pursuant to the Plan.

6. OPTION AWARDS

     (a) Types; Documentation. The Committee may in its discretion grant ISOs to
any Employee and Non-ISOs to any Eligible Person, and shall evidence any such
grants in an Award Agreement that is delivered to the Participant. Each Option
shall be designated in the Award Agreement as an ISO or a Non-ISO, and the same
Award Agreement may grant both types of Options. At the sole discretion of the
Committee, any Option may be exercisable, in whole or in part, immediately upon
the grant thereof, or only after the occurrence of a specified event, or only in
installments, which installments may vary. Options granted under the Plan may
contain such terms and provisions not inconsistent with the Plan that the
Committee shall deem advisable in its sole and absolute discretion.

     (b) ISO $100,000 Limitation. To the extent that the aggregate Fair Market
Value of Shares with respect to which Options designated as ISOs first become
exercisable by a Participant in any calendar year (under this Plan and any other
plan of the Company or any Affiliate) exceeds $100,000, such excess Options
shall be treated as Non-ISOs. For purposes of determining whether the $100,000
limit is exceeded, the Fair Market Value of the Shares subject to



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2006 Stock Incentive Plan
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an ISO shall be determined as of the Grant Date. In reducing the number of
Options treated as ISOs to meet the $100,000 limit, the most recently granted
Options shall be reduced first. In the event that Section 422 of the Code is
amended to alter the limitation set forth therein, the limitation of this
Section 6(b) shall be automatically adjusted accordingly.

     (c) Term of Options. Each Award Agreement shall specify a term at the end
of which the Option automatically expires, subject to earlier termination
provisions contained in Section 6(h) hereof; provided, that, the term of any
Option may not exceed ten years from the Grant Date. In the case of an ISO
granted to an Employee who is a Ten Percent Holder on the Grant Date, the term
of the ISO shall not exceed five years from the Grant Date.

     (d) Exercise Price. The exercise price of an Option shall be determined by
the Committee in its sole discretion and shall be set forth in the Award
Agreement, provided that (i) if an ISO is granted to an Employee who on the
Grant Date is a Ten Percent Holder, the per Share exercise price shall not be
less than 110% of the Fair Market Value per Share on the Grant Date, and (ii)
for all other Options, such per Share exercise price shall not be less than 100%
of the Fair Market Value per Share on the Grant Date. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of the federal securities laws applicable to proxy statement
disclosures.

     (e) Exercise of Option. The times, circumstances and conditions under which
an Option shall be exercisable shall be determined by the Committee in its sole
discretion and set forth in the Award Agreement. The Committee shall have the
discretion to determine whether and to what extent the vesting of Options shall
be tolled during any unpaid leave of absence; provided, however, that in the
absence of such determination, vesting of Options shall be tolled during any
such leave approved by the Company.

     (f) Minimum Exercise Requirements. An Option may not be exercised for a
fraction of a Share. The Committee may require in an Award Agreement that an
Option be exercised as to a minimum number of Shares, provided that such
requirement shall not prevent a Participant from purchasing the full number of
Shares as to which the Option is then exercisable.

     (g) Methods of Exercise. Prior to its expiration pursuant to the terms of
the applicable Award Agreement, and subject to the times, circumstances and
conditions for exercise contained in the applicable Award Agreement, each Option
may be exercised, in whole or in part (provided that the Company shall not be
required to issue fractional shares), by delivery of written notice of exercise
to the secretary of the Company accompanied by the full exercise price of the
Shares being purchased. In the case of an ISO, the Committee shall determine the
acceptable methods of payment on the Grant Date and it shall be included in the
applicable Award Agreement. The methods of payment that the Committee may in its
discretion accept or commit to accept in an Award Agreement include:

          (i) cash or check payable to the Company (in U.S. dollars);

          (ii) other Shares that (A) are owned by the Participant who is
     purchasing Shares pursuant to an Option, (B) have a Fair Market Value on
     the date of surrender equal to the aggregate exercise price of the Shares
     as to which the Option is being exercised, (C) were not acquired by such
     Participant pursuant to the exercise of an Option, unless such Shares have
     been owned by such Participant for at least six months or such other period
     as the Committee may determine, (D) are all, at the time of such surrender,
     free and clear of any and all claims, pledges, liens and encumbrances, or
     any restrictions which would in any manner restrict the transfer of such
     shares to or by the Company (other than such restrictions as may have
     existed prior to an issuance of such Shares by the Company to such
     Participant), and (E) are duly endorsed for transfer to the Company;

          (iii) a cashless exercise program that the Committee may approve, from
     time to time in its discretion, pursuant to which a Participant may
     concurrently provide irrevocable instructions (A) to such Participant's
     broker or dealer to effect the immediate sale of the purchased Shares and
     remit to the Company, out of the sale proceeds available on the settlement
     date, sufficient funds to cover the exercise price of the Option plus all
     applicable taxes required to be withheld by the Company by reason of such
     exercise, and (B) to the Company to deliver the certificates for the
     purchased Shares directly to such broker or dealer in order to complete the
     sale; or



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          (iv) any combination of the foregoing methods of payment.

     The Company shall not be required to deliver Shares pursuant to the
exercise of an Option until payment of the full exercise price therefore is
received by the Company.

     (h) Termination of Continuous Service. The Committee may establish and set
forth in the applicable Award Agreement the terms and conditions on which an
Option shall remain exercisable, if at all, following termination of a
Participant's Continuous Service. The Committee may waive or modify these
provisions at any time. To the extent that a Participant is not entitled to
exercise an Option at the date of his or her termination of Continuous Service,
or if the Participant (or other person entitled to exercise the Option) does not
exercise the Option to the extent so entitled within the time specified in the
Award Agreement or below (as applicable), the Option shall terminate and the
Shares underlying the unexercised portion of the Option shall revert to the Plan
and become available for future Awards. In no event may any Option be exercised
after the expiration of the Option term as set forth in the Award Agreement.

     The following provisions shall apply to the extent an Award Agreement does
not specify the terms and conditions upon which an Option shall terminate when
there is a termination of a Participant's Continuous Service:

          (i) Termination other than Upon Disability or Death or for Cause. In
     the event of termination of a Participant's Continuous Service (other than
     as a result of Participant's death, disability, retirement or termination
     for Cause), the Participant shall have the right to exercise an Option at
     any time within 90 days following such termination to the extent the
     Participant was entitled to exercise such Option at the date of such
     termination.

          (ii) Disability. In the event of termination of a Participant's
     Continuous Service as a result of his or her being Disabled, the
     Participant shall have the right to exercise an Option at any time within
     one year following such termination to the extent the Participant was
     entitled to exercise such Option at the date of such termination.

          (iii) Retirement. In the event of termination of a Participant's
     Continuous Service as a result of Participant's retirement, the Participant
     shall have the right to exercise the Option at any time within six months
     following such termination to the extent the Participant was entitled to
     exercise such Option at the date of such termination.

          (iv) Death. In the event of the death of a Participant during the
     period of Continuous Service since the Grant Date of an Option, or within
     thirty days following termination of the Participant's Continuous Service,
     the Option may be exercised, at any time within one year following the date
     of the Participant's death, by the Participant's estate or by a person who
     acquired the right to exercise the Option by bequest or inheritance, but
     only to the extent the right to exercise the Option had vested at the date
     of death or, if earlier, the date the Participant's Continuous Service
     terminated.

          (v) Cause. If the Committee determines that a Participant's Continuous
     Service terminated due to Cause, the Participant shall immediately forfeit
     the right to exercise any Option, and it shall be considered immediately
     null and void.

     (i) Reverse Vesting. The Committee in its sole discretion may allow a
Participant to exercise unvested Options, in which case the Shares then issued
shall be Restricted Shares having analogous vesting restrictions to the unvested
Options.

     (j) Buyout Provisions. The Committee may at any time offer to buy out an
Option, in exchange for a payment in cash or Shares, based on such terms and
conditions as the Committee shall establish and communicate to the Participant
at the time that such offer is made.

7. SHARE APPRECIATE RIGHTS (SARS)



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2006 Stock Incentive Plan
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     (a) Grants. The Committee may in its discretion grant Share Appreciation
Rights to any Eligible Person, in any of the following forms:

          (i) SARs related to Options. The Committee may grant SARs either
     concurrently with the grant of an Option or with respect to an outstanding
     Option, in which case the SAR shall extend to all or a portion of the
     Shares covered by the related Option. An SAR shall entitle the Participant
     who holds the related Option, upon exercise of the SAR and surrender of the
     related Option, or portion thereof, to the extent the SAR and related
     Option each were previously unexercised, to receive payment of an amount
     determined pursuant to Section 7(e) below. Any SAR granted in connection
     with an ISO will contain such terms as may be required to comply with the
     provisions of Section 422 of the Code and the regulations promulgated
     thereunder.

          (ii) SARs Independent of Options. The Committee may grant SARs which
     are independent of any Option subject to such conditions as the Committee
     may in its discretion determine, which conditions will be set forth in the
     applicable Award Agreement.

          (iii) Limited SARs. The Committee may grant SARs exercisable only upon
     or in respect of a Change in Control or any other specified event, and such
     limited SARs may relate to or operate in tandem or combination with or
     substitution for Options or other SARs, or on a stand-alone basis, and may
     be payable in cash or Shares based on the spread between the exercise price
     of the SAR, and (A) a price based upon or equal to the Fair Market Value of
     the Shares during a specified period, at a specified time within a
     specified period before, after or including the date of such event, or (B)
     a price related to consideration payable to Company's shareholders
     generally in connection with the event.

     (b) Exercise Price. The per Share exercise price of an SAR shall be
determined in the sole discretion of the Committee, shall be set forth in the
applicable Award Agreement, and shall be no less than 100% of the Fair Market
Value of one Share. The exercise price of an SAR related to an Option shall be
the same as the exercise price of the related Option. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of federal securities laws applicable to proxy statement
disclosures.

     (c) Exercise of SARs. Unless the Award Agreement otherwise provides, an SAR
related to an Option will be exercisable at such time or times, and to the
extent, that the related Option will be exercisable; provided that the Award
Agreement shall not, without the approval of the shareholders of the Company,
provide for a vesting period for the exercise of the SAR that is more favorable
to the Participant than the exercise period for the related Option. An SAR may
not have a term exceeding ten years from its Grant Date. An SAR granted
independently of any other Award will be exercisable pursuant to the terms of
the Award Agreement, but shall not, without the approval of the shareholders of
the Company, provide for a vesting period for the exercise of the SAR that is
more favorable to the Participant than the exercise period for the related
Option. Whether an SAR is related to an Option or is granted independently, the
SAR may only be exercised when the Fair Market Value of the Shares underlying
the SAR exceeds the exercise price of the SAR.

     (d) Effect on Available Shares. All SARs that may be settled in shares of
the Company's stock shall be counted in full against the number of shares
available for award under the Plan, regardless of the number of shares actually
issued upon settlement of the SARs.

     (e) Payment. Upon exercise of an SAR related to an Option and the attendant
surrender of an exercisable portion of any related Award, the Participant will
be entitled to receive payment of an amount determined by multiplying --

          (i) the excess of the Fair Market Value of a Share on the date of
     exercise of the SAR over the exercise price per Share of the SAR, by

          (ii) the number of Shares with respect to which the SAR has been
     exercised.

     Notwithstanding the foregoing, an SAR granted independently of an Option
(i) may limit the amount payable to the Participant to a percentage, specified
in the Award Agreement but not exceeding one-hundred percent (100%),



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of the amount determined pursuant to the preceding sentence, and (ii) shall be
subject to any payment or other restrictions that the Committee may at any time
impose in its discretion, including restrictions intended to conform the SARs
with Section 409A of the Code.

     (f) Form and Terms of Payment. Subject to Applicable Law, the Committee
may, in its sole discretion, settle the amount determined under Section 7(e)
above solely in cash, solely in Shares (valued at their Fair Market Value on the
date of exercise of the SAR), or partly in cash and partly in Shares, with cash
paid in lieu of fractional shares. Unless otherwise provided in an Award
Agreement, all SARs shall be settled in Shares as soon as practicable after
exercise.

     (g) Termination of Employment or Consulting Relationship. The Committee
shall establish and set forth in the applicable Award Agreement the terms and
conditions on which an SAR shall remain exercisable, if at all, following
termination of a Participant's Continuous Service. The provisions of Section
6(h) above shall apply to the extent an Award Agreement does not specify the
terms and conditions upon which an SAR shall terminate when there is a
termination of a Participant's Continuous Service.

     (h) Buy out. The Committee has the same discretion to buy out SARs as it
has to take such actions pursuant to Section 6(j) above with respect to Options.

8. RESTRICTED SHARES, RESTRICTED SHARE UNITS, AND UNRESTRICTED SHARES

     (a) Grants. The Committee may in its sole discretion grant restricted
shares ("Restricted Shares") to any Eligible Person and shall evidence such
grant in an Award Agreement that is delivered to the Participant and that sets
forth the number of Restricted Shares, the purchase price for such Restricted
Shares (if any), and the terms upon which the Restricted Shares may become
vested. In addition, the Company may in its discretion grant the right to
receive Shares after certain vesting requirements are met ("Restricted Share
Units") to any Eligible Person and shall evidence such grant in an Award
Agreement that is delivered to the Participant which sets forth the number of
Shares (or formula, that may be based on future performance or conditions, for
determining the number of Shares) that the Participant shall be entitled to
receive upon vesting and the terms upon which the Shares subject to a Restricted
Share Unit may become vested. The Committee may condition any Award of
Restricted Shares or Restricted Share Units to a Participant on receiving from
the Participant such further assurances and documents as the Committee may
require to enforce the restrictions. In addition, the Committee may grant Awards
hereunder in the form of unrestricted shares ("Unrestricted Shares"), which
shall vest in full upon the date of grant or such other date as the Committee
may determine or which the Committee may issue pursuant to any program under
which one or more Eligible Persons (selected by the Committee in its sole
discretion) elect to receive Unrestricted Shares in lieu of cash bonuses that
would otherwise be paid.

     (b) Vesting and Forfeiture. The Committee shall set forth in an Award
Agreement granting Restricted Shares or Restricted Share Units, the terms and
conditions under which the Participant's interest in the Restricted Shares or
the Shares subject to Restricted Share Units will become vested and
non-forfeitable. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, upon termination of a Participant's Continuous
Service for any other reason, the Participant shall forfeit his or her
Restricted Shares and Restricted Share Units; provided that if a Participant
purchases the Restricted Shares and forfeits them for any reason, the Company
shall return the purchase price to the Participant only if and to the extent set
forth in an Award Agreement.

     (c) Issuance of Restricted Shares Prior to Vesting. The Company shall issue
stock certificates that evidence Restricted Shares pending the lapse of
applicable restrictions, and that bear a legend making appropriate reference to
such restrictions. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, the Company or a third party that the Company
designates shall hold such Restricted Shares and any dividends that accrue with
respect to Restricted Shares pursuant to Section 8(e) below.

     (d) Issuance of Shares upon Vesting. As soon as practicable after vesting
of a Participant's Restricted Shares (or Shares underlying Restricted Share
Units) and the Participant's satisfaction of applicable tax withholding
requirements, the Company shall release to the Participant, free from the
vesting restrictions, one Share for each



Commerce Energy Group, Inc.
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Page 8


vested Restricted Share (or issue one Share free of the vesting restriction for
each vested Restricted Share Unit), unless an Award Agreement provides
otherwise. No fractional shares shall be distributed, and cash shall be paid in
lieu thereof.

     (e) Dividends Payable on Vesting. Whenever Shares are released to a
Participant or duly-authorized transferee pursuant to Section 8(d) above as a
result of the vesting of Restricted Shares or the Shares underlying Restricted
Share Units are issued to a Participant pursuant to Section 8(d) above, such
Participant or duly-authorized transferee shall also be entitled to receive
(unless otherwise provided in the Award Agreement), with respect to each Share
released or issued, an amount equal to any cash dividends (plus, in the sole
discretion of the Committee, simple interest at a rate as the Committee may
determine) and a number of Shares equal to any stock dividends, which were
declared and paid to the holders of Shares between the Grant Date and the date
such Share is released from the vesting restrictions in the case of Restricted
Shares or issued in the case of Restricted Share Units.

     (f) Section 83(b) Elections. A Participant may make an election under
Section 83(b) of the Code (the "Section 83(b) Election") with respect to
Restricted Shares. If a Participant who has received Restricted Share Units
provides the Committee with written notice of his or her intention to make a
Section 83(b) Election with respect to the Shares subject to such Restricted
Share Units, the Committee may in its discretion convert the Participant's
Restricted Share Units into Restricted Shares, on a one-for-one basis, in full
satisfaction of the Participant's Restricted Share Unit Award. The Participant
may then make a Section 83(b) Election with respect to those Restricted Shares.
Shares with respect to which a Participant makes a Section 83(b) Election shall
not be eligible for deferral pursuant to Section 9 below.

     (g) Deferral Elections. At any time within the thirty-day period (or other
shorter or longer period that the Committee selects in its sole discretion) in
which a Participant who is a member of a select group of management or highly
compensated employees (within the meaning of the Code) receives an Award of
either Restricted Shares or Restricted Share Units, the Committee may permit the
Participant to irrevocably elect, on a form provided by and acceptable to the
Committee, to defer the receipt of all or a percentage of the Shares that would
otherwise be transferred to the Participant upon the vesting of such Award. If
the Participant makes this election, the Shares subject to the election, and any
associated dividends and interest, shall be credited to an account established
pursuant to Section 9 hereof on the date such Shares would otherwise have been
released or issued to the Participant pursuant to Section 8(d) above.

9.  DEFERRED SHARE UNITS

     (a) Elections to Defer. The Committee may permit any Eligible Person who is
a Director, Consultant or member of a select group of management or highly
compensated employees (within the meaning of the Code) to irrevocably elect, on
a form provided by and acceptable to the Committee (the "Election Form"), to
forego the receipt of cash or other compensation (including the Shares
deliverable pursuant to any Award other than Restricted Shares for which a
Section 83(b) Election has been made), and in lieu thereof to have the Company
credit to an internal Plan account (the "Account") a number of deferred share
units ("Deferred Share Units") having a Fair Market Value equal to the Shares
and other compensation deferred. These credits will be made at the end of each
calendar month during which compensation is deferred. Each Election Form shall
take effect on the first day of the next calendar year (or on the first day of
the next calendar month in the case of an initial election by a Participant who
first becomes eligible to defer hereunder) after its delivery to the Company,
subject to Section 8(g) regarding deferral of Restricted Shares and Restricted
Share Units and to Section 10(e) regarding deferral of Performance Awards,
unless the Company sends the Participant a written notice explaining why the
Election Form is invalid within five business days after the Company receives
it. Notwithstanding the foregoing sentence: (i) Election Forms shall be
ineffective with respect to any compensation that a Participant earns before the
date on which the Company receives the Election Form, and (ii) the Committee may
unilaterally make awards in the form of Deferred Share Units, regardless of
whether or not the Participant foregoes other compensation.

     (b) Vesting. Unless an Award Agreement expressly provides otherwise, each
Participant shall be 100% vested at all times in any Shares subject to Deferred
Share Units.



Commerce Energy Group, Inc.
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Page 9


     (c) Issuances of Shares. The Company shall provide a Participant with one
Share for each Deferred Share Unit in five substantially equal annual
installments that are issued before the last day of each of the five calendar
years that end after the date on which the Participant's Continuous Service
terminates, unless --

          (i) the Participant has properly elected a different form of
     distribution, on a form approved by the Committee, that permits the
     Participant to select any combination of a lump sum and annual installments
     that are completed within ten years following termination of the
     Participant's Continuous Service, and

          (ii) the Company received the Participant's distribution election form
     at the time the Participant elects to defer the receipt of cash or other
     compensation pursuant to Section 9(a), provided that such election may be
     changed through any subsequent election that (i) is delivered to the
     Company at least one year before the date on which distributions are
     otherwise scheduled to commence pursuant to the Participant's election, and
     (ii) defers the commencement of distributions by at least five years from
     the originally scheduled commencement date.

     Fractional shares shall not be issued, and instead shall be paid out in
cash.

     (d) Crediting of Dividends. Whenever Shares are issued to a Participant
pursuant to Section 9(c) above, such Participant shall also be entitled to
receive, with respect to each Share issued, a cash amount equal to any cash
dividends (plus simple interest at a rate of five percent per annum, or such
other reasonable rate as the Committee may determine), and a number of Shares
equal to any stock dividends which were declared and paid to the holders of
Shares between the Grant Date and the date such Share is issued.

     (e) Emergency Withdrawals. In the event a Participant suffers an
unforeseeable emergency within the contemplation of this Section and Section
409A of the Code, the Participant may apply to the Company for an immediate
distribution of all or a portion of the Participant's Deferred Share Units. The
unforeseeable emergency must result from a sudden and unexpected illness or
accident of the Participant, the Participant's spouse, or a dependent (within
the meaning of Section 152(a) of the Code) of the Participant, casualty loss of
the Participant's property, or other similar extraordinary and unforeseeable
conditions beyond the control of the Participant. Examples of purposes which are
not considered unforeseeable emergencies include post-secondary school expenses
or the desire to purchase a residence. In no event will a distribution be made
to the extent the unforeseeable emergency could be relieved through
reimbursement or compensation by insurance or otherwise, or by liquidation of
the Participant's nonessential assets to the extent such liquidation would not
itself cause a severe financial hardship. The amount of any distribution
hereunder shall be limited to the amount necessary to relieve the Participant's
unforeseeable emergency plus amounts necessary to pay taxes reasonably
anticipated as a result of the distribution. The Committee shall determine
whether a Participant has a qualifying unforeseeable emergency and the amount
which qualifies for distribution, if any. The Committee may require evidence of
the purpose and amount of the need, and may establish such application or other
procedures as it deems appropriate.

     (f) Unsecured Rights to Deferred Compensation. A Participant's right to
Deferred Share Units shall at all times constitute an unsecured promise of the
Company to pay benefits as they come due. The right of the Participant or the
Participant's duly-authorized transferee to receive benefits hereunder shall be
solely an unsecured claim against the general assets of the Company. Neither the
Participant nor the Participant's duly-authorized transferee shall have any
claim against or rights in any specific assets, shares, or other funds of the
Company.

10. PERFORMANCE AWARDS

     (a) Performance Units. Subject to the limitations set forth in paragraph
(c) hereof, the Committee may in its discretion grant Performance Units to any
Eligible Person and shall evidence such grant in an Award Agreement that is
delivered to the Participant which sets forth the terms and conditions of the
Award.

     (b) Performance Compensation Awards. Subject to the limitations set forth
in paragraph (c) hereof, the Committee may, at the time of grant of a
Performance Unit, designate such Award as a "Performance Compensation Award"
(payable in cash or Shares) in order that such Award constitutes "qualified
performance-based compensation" under Code Section 162(m), in which event the
Committee shall have the power to grant such



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Performance Compensation Award upon terms and conditions that qualify it as
"qualified performance-based compensation" within the meaning of Code Section
162(m). With respect to each such Performance Compensation Award, the Committee
shall establish, in writing within the time required under Code Section 162(m),
a "Performance Period," "Performance Measure(s)", and "Performance Formula(e)"
(each such term being hereinafter defined). Once established for a Performance
Period, the Performance Measure(s) and Performance Formula(e) shall not be
amended or otherwise modified to the extent such amendment or modification would
cause the compensation payable pursuant to the Award to fail to constitute
qualified performance-based compensation under Code Section 162(m).

     A Participant shall be eligible to receive payment in respect of a
Performance Compensation Award only to the extent that the Performance
Measure(s) for such Award is achieved and the Performance Formula(e) as applied
against such Performance Measure(s) determines that all or some portion of such
Participant's Award has been earned for the Performance Period. As soon as
practicable after the close of each Performance Period, the Committee shall
review and certify in writing whether, and to what extent, the Performance
Measure(s) for the Performance Period have been achieved and, if so, determine
and certify in writing the amount of the Performance Compensation Award to be
paid to the Participant and, in so doing, may use negative discretion to
decrease, but not increase, the amount of the Award otherwise payable to the
Participant based upon such performance.

     (c) Limitations on Awards. The maximum Performance Unit Award and the
maximum Performance Compensation Award that any one Participant may receive for
any one Performance Period shall not together exceed 1,000,000 Shares and
$1,000,000 in cash. The Committee shall have the discretion to provide in any
Award Agreement that any amounts earned in excess of these limitations will
either be credited as Deferred Share Units, or as deferred cash compensation
under a separate plan of the Company (provided in the latter case that such
deferred compensation either bears a reasonable rate of interest or has a value
based on one or more predetermined actual investments). Any amounts for which
payment to the Participant is deferred pursuant to the preceding sentence shall
be paid to the Participant in a future year or years not earlier than, and only
to the extent that, the Participant is either not receiving compensation in
excess of these limits for a Performance Period, or is not subject to the
restrictions set forth under Section 162(b) of the Code.

(d) Definitions.

          (i) "Performance Formula" means, for a Performance Period, one or more
     objective formulas or standards established by the Committee for purposes
     of determining whether or the extent to which an Award has been earned
     based on the level of performance attained or to be attained with respect
     to one or more Performance Measure(s). Performance Formulae may vary from
     Performance Period to Performance Period and from Participant to
     Participant and may be established on a stand-alone basis, in tandem or in
     the alternative.

          (ii) "Performance Measure" means one or more of the following selected
     by the Committee to measure Company, Affiliate, and/or business unit
     performance for a Performance Period, whether in absolute or relative terms
     (including, without limitation, terms relative to a peer group or index):
     basic, diluted, or adjusted earnings per share; sales or revenue; earnings
     before interest, taxes, and other adjustments (in total or on a per share
     basis); basic or adjusted net income; returns on equity, assets, capital,
     revenue or similar measure; economic value added; working capital; total
     shareholder return; and product development, product market share,
     research, licensing, litigation, human resources, information services,
     mergers, acquisitions, sales of assets of Affiliates or business units.
     Each such measure shall be, to the extent applicable, determined in
     accordance with generally accepted accounting principles as consistently
     applied by the Company (or such other standard applied by the Committee)
     and, if so determined by the Committee, and in the case of a Performance
     Compensation Award, to the extent permitted under Code Section 162(m),
     adjusted to omit the effects of extraordinary items, gain or loss on the
     disposal of a business segment, unusual or infrequently occurring events
     and transactions and cumulative effects of changes in accounting
     principles. Performance Measures may vary from Performance Period to
     Performance Period and from Participant to Participant, and may be
     established on a stand-alone basis, in tandem or in the alternative.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
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          (iii) "Performance Period" means one or more periods of time (of not
     less than one fiscal year of the Company), as the Committee may designate,
     over which the attainment of one or more Performance Measure(s) will be
     measured for the purpose of determining a Participant's rights in respect
     of an Award.

     (e) Deferral Elections. At any time prior to the date that is at least six
months before the close of a Performance Period (or shorter or longer period
that the Committee selects) with respect to an Award of either Performance Units
or Performance Compensation, the Committee may permit a Participant who is a
member of a select group of management or highly compensated employees (within
the meaning of the Code) to irrevocably elect, on a form provided by and
acceptable to the Committee, to defer the receipt of all or a percentage of the
cash or Shares that would otherwise be transferred to the Participant upon the
vesting of such Award. If the Participant makes this election, the cash or
Shares subject to the election, and any associated interest and dividends, shall
be credited to an account established pursuant to Section 9 hereof on the date
such cash or Shares would otherwise have been released or issued to the
Participant pursuant to Section 10(a) or Section 10(b) above.

11. TAXES

     (a) General. As a condition to the issuance or distribution of Shares
pursuant to the Plan, the Participant (or in the case of the Participant's
death, the person who succeeds to the Participant's rights) shall make such
arrangements as the Company may require for the satisfaction of any applicable
federal, state, local or foreign withholding tax obligations that may arise in
connection with the Award and the issuance of Shares. The Company shall not be
required to issue any Shares until such obligations are satisfied. If the
Committee allows the withholding or surrender of Shares to satisfy a
Participant's tax withholding obligations, the Committee shall not allow Shares
to be withheld in an amount that exceeds the minimum statutory withholding rates
for federal and state tax purposes, including payroll taxes.

     (b) Default Rule for Employees. In the absence of any other arrangement, an
Employee shall be deemed to have directed the Company to withhold or collect
from his or her cash compensation an amount sufficient to satisfy such tax
obligations from the next payroll payment otherwise payable after the date of
the exercise of an Award.

     (c) Special Rules. In the case of a Participant other than an Employee (or
in the case of an Employee where the next payroll payment is not sufficient to
satisfy such tax obligations, with respect to any remaining tax obligations), in
the absence of any other arrangement and to the extent permitted under
Applicable Law, the Participant shall be deemed to have elected to have the
Company withhold from the Shares or cash to be issued pursuant to an Award that
number of Shares having a Fair Market Value determined as of the applicable Tax
Date (as defined below) or cash equal to the amount required to be withheld. For
purposes of this Section 11, the Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined under the Applicable Law (the "Tax Date").

     (d) Surrender of Shares. If permitted by the Committee, in its discretion,
a Participant may satisfy the minimum applicable tax withholding and employment
tax obligations associated with an Award by surrendering Shares to the Company
(including Shares that would otherwise be issued pursuant to the Award) that
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld. In the case of Shares previously acquired from
the Company that are surrendered under this Section 11, such Shares must have
been owned by the Participant for more than six months on the date of surrender
(or such longer period of time the Company may in its discretion require).

     (e) Income Taxes and Deferred Compensation. Participants are solely
responsible and liable for the satisfaction of all taxes and penalties that may
arise in connection with Awards (including any taxes arising under Section 409A
of the Code), and the Company shall not have any obligation to indemnify or
otherwise hold any Participant harmless from any or all of such taxes. The
Committee shall have the discretion to organize any deferral program, to require
deferral election forms, and to grant or to unilaterally modify any Award in a
manner that (i) conforms with the requirements of Section 409A of the Code with
respect to compensation that is deferred and that vests after December 31, 2004,
(ii) that voids any Participant election to the extent it would violate Section
409A of the Code, and (iii) for any distribution election that would violate
Section 409A of the Code, to make distributions pursuant to



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 12


the Award at the earliest to occur of a distribution event that is allowable
under Section 409A of the Code or any distribution event that is both allowable
under Section 409A of the Code and is elected by the Participant, subject to any
valid second election to defer, provided that the Committee permits second
elections to defer in accordance with Section 409A(a)(4)(C). The Committee shall
have the sole discretion to interpret the requirements of the Code, including
Section 409A, for purposes of the Plan and all Awards.

12. NON-TRANSFERABILITY OF AWARDS

     (a) General. Except as set forth in this Section 12, or as otherwise
approved by the Committee, Awards may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent or distribution. The designation of a beneficiary by a
Participant will not constitute a transfer. An Award may be exercised, during
the lifetime of the holder of an Award, only by such holder, the duly-authorized
legal representative of a Participant who is Disabled, or a transferee permitted
by this Section 12.

     (b) Limited Transferability Rights. Notwithstanding anything else in this
Section 12, the Committee may in its discretion provide in an Award Agreement
that an Award other than an ISO may be transferred, on such terms and conditions
as the Committee deems appropriate, either (i) by instrument to the
Participant's "Immediate Family" (as defined below), (ii) by instrument to an
inter vivos or testamentary trust (or other entity) in which the Award is to be
passed to the Participant's designated beneficiaries, or (iii) by gift to
charitable institutions. Any transferee of the Participant's rights shall
succeed and be subject to all of the terms of the applicable Award Agreement and
the Plan. "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, and shall include adoptive relationships.

13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER
TRANSACTIONS

     (a) Changes in Capitalization. The Committee shall equitably adjust the
number of Shares covered by each outstanding Award, and the number of Shares
that have been authorized for issuance under the Plan but as to which no Awards
have yet been granted or that have been returned to the Plan upon cancellation,
forfeiture, or expiration of an Award, as well as the price per Share covered by
each such outstanding Award, to reflect any increase or decrease in the number
of issued Shares resulting from a stock-split, reverse stock-split, stock
dividend, combination, recapitalization or reclassification of the Shares, or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company. In the event of any such transaction or
event, the Committee may provide in substitution for any or all outstanding
Options under the Plan such alternative consideration (including securities of
any surviving entity) as it may in good faith determine to be equitable under
the circumstances and may require in connection therewith the surrender of all
Options so replaced. In any case, such substitution of securities shall not
require the consent of any person who is granted Options pursuant to the Plan.
Except as expressly provided herein, or in an Award Agreement, if the Company
issues for consideration shares of stock of any class or securities convertible
into shares of stock of any class, the issuance shall not affect, and no
adjustment by reason thereof shall be required to be made with respect to the
number or price of Shares subject to any Award.

     (b) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company other than as part of a Change of Control, each Award
will terminate immediately prior to the consummation of such action, subject to
the ability of the Committee to exercise any discretion authorized in the case
of a Change in Control.

     (c) Change in Control. In the event of a Change in Control, the Committee
may in its sole and absolute discretion and authority, without obtaining the
approval or consent of the Company's shareholders or any Participant with
respect to his or her outstanding Awards, take one or more of the following
actions:

          (i) arrange for or otherwise provide that each outstanding Award shall
     be assumed or a substantially similar award shall be substituted by a
     successor corporation or a parent or subsidiary of such successor
     corporation (the "Successor Corporation");



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 13


          (ii) accelerate the vesting of Awards so that Awards shall vest (and,
     to the extent applicable, become exercisable) as to the Shares that
     otherwise would have been unvested and provide that repurchase rights of
     the Company with respect to Shares issued upon exercise of an Award shall
     lapse as to the Shares subject to such repurchase right;

          (iii) arrange or otherwise provide for the payment of cash or other
     consideration to Participants in exchange for the satisfaction and
     cancellation of outstanding Awards;

          (iv) terminate upon the consummation of the transaction, provided that
     the Committee may in its sole discretion provide for vesting of all or some
     outstanding Awards in full as of a date immediately prior to consummation
     of the Change of Control. To the extent that an Award is not exercised
     prior to consummation of a transaction in which the Award is not being
     assumed or substituted, such Award shall terminate upon such consummation;
     or

          (v) make such other modifications, adjustments or amendments to
     outstanding Awards or this Plan as the Committee deems necessary or
     appropriate, subject however to the terms of Section 15(a) below.

     Notwithstanding the above, in the event a Participant holding an Award
assumed or substituted by the Successor Corporation in a Change in Control is
Involuntarily Terminated by the Successor Corporation in connection with, or
within 12 months following consummation of, the Change in Control, then any
assumed or substituted Award held by the terminated Participant at the time of
termination shall accelerate and become fully vested (and exercisable in full in
the case of Options and SARs), and any repurchase right applicable to any Shares
shall lapse in full, unless an Award Agreement provides for a more restrictive
acceleration or vesting schedule or more restrictive limitations on the lapse of
repurchase rights or otherwise places additional restrictions, limitations and
conditions on an Award. The acceleration of vesting and lapse of repurchase
rights provided for in the previous sentence shall occur immediately prior to
the effective date of the Participant's termination, unless an Award Agreement
provides otherwise.

     (d) Certain Distributions. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Committee may, in its discretion,
appropriately adjust the price per Share covered by each outstanding Award to
reflect the effect of such distribution.

14. TIME OF GRANTING AWARDS.

     The date of grant ("Grant Date") of an Award shall be the date on which the
Committee makes the determination granting such Award or such other date as is
determined by the Committee, provided that in the case of an ISO, the Grant Date
shall be the later of the date on which the Committee makes the determination
granting such ISO or the date of commencement of the Participant's employment
relationship with the Company.

15. MODIFICATION OF AWARDS AND SUBSTITUTION OF OPTIONS.

     (a) Modification, Extension, and Renewal of Awards. Within the limitations
of the Plan, the Committee may modify an Award to accelerate the rate at which
an Option or SAR may be exercised (including without limitation permitting an
Option or SAR to be exercised in full without regard to the installment or
vesting provisions of the applicable Award Agreement or whether the Option or
SAR is at the time exercisable, to the extent it has not previously been
exercised), to accelerate the vesting of any Award, to extend or renew
outstanding Awards or to accept the cancellation of outstanding Awards to the
extent not previously exercised. However, the Committee may not cancel an
outstanding option that is underwater for the purpose of reissuing the option to
the participant at a lower exercise price or granting a replacement award of a
different type. Notwithstanding the foregoing provision, no modification of an
outstanding Award shall materially and adversely affect such Participant's
rights thereunder, unless either the Participant provides written consent or
there is an express Plan provision permitting the Committee to act unilaterally
to make the modification.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 14


     (b) Substitution of Options. Notwithstanding any inconsistent provisions or
limits under the Plan, in the event the Company or an Affiliate acquires
(whether by purchase, merger or otherwise) all or substantially all of
outstanding capital stock or assets of another corporation or in the event of
any reorganization or other transaction qualifying under Section 424 of the
Code, the Committee may, in accordance with the provisions of that Section,
substitute Options for options under the plan of the acquired company provided
(i) the excess of the aggregate fair market value of the shares subject to an
option immediately after the substitution over the aggregate option price of
such shares is not more than the similar excess immediately before such
substitution and (ii) the new option does not give persons additional benefits,
including any extension of the exercise period.

16. TERM OF PLAN.

     The Plan shall continue in effect for a term of ten (10) years from its
effective date as determined under Section 20 below, unless the Plan is sooner
terminated under Section 17 below.

17. AMENDMENT AND TERMINATION OF THE PLAN.

     (a) Authority to Amend or Terminate. Subject to Applicable Laws, the Board
may from time to time amend, alter, suspend, discontinue, or terminate the Plan.

     (b) Effect of Amendment or Termination. No amendment, suspension, or
termination of the Plan shall materially and adversely affect Awards already
granted unless either it relates to an adjustment pursuant to Section 13 above,
or it is otherwise mutually agreed between the Participant and the Committee,
which agreement must be in writing and signed by the Participant and the
Company. Notwithstanding the foregoing, the Committee may amend the Plan to
eliminate provisions which are no longer necessary as a result of changes in tax
or securities laws or regulations, or in the interpretation thereof.

18. CONDITIONS UPON ISSUANCE OF SHARES.

     Notwithstanding any other provision of the Plan or any agreement entered
into by the Company pursuant to the Plan, the Company shall not be obligated,
and shall have no liability for failure, to issue or deliver any Shares under
the Plan unless such issuance or delivery would comply with Applicable Law, with
such compliance determined by the Company in consultation with its legal
counsel.

19. RESERVATION OF SHARES.

     The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.

20. EFFECTIVE DATE.

     This Plan shall become effective on the date on which it has received
approval by a vote of a majority of the votes cast at a duly held meeting of the
Company's shareholders (or by such other shareholder vote that the Administrator
determines to be sufficient for the issuance of Shares or stock options
according to the Company's governing documents and applicable state law).

21. CONTROLLING LAW.

     All disputes relating to or arising from the Plan shall be governed by the
internal substantive laws (and not the laws of conflicts of laws) of the State
of Delaware, to the extent not preempted by United States federal law. If any
provision of this Plan is held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions shall continue to be fully
effective.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 15


22. LAWS AND REGULATIONS.

     (a) U.S. Securities Laws. This Plan, the grant of Awards, and the exercise
of Options and SARs under this Plan, and the obligation of the Company to sell
or deliver any of its securities (including, without limitation, Options,
Restricted Shares, Restricted Share Units, Deferred Share Units, and Shares)
under this Plan shall be subject to all Applicable Law. In the event that the
Shares are not registered under the Securities Act of 1933, as amended (the
"Act"), or any applicable state securities laws prior to the delivery of such
Shares, the Company may require, as a condition to the issuance thereof, that
the persons to whom Shares are to be issued represent and warrant in writing to
the Company that such Shares are being acquired by him or her for investment for
his or her own account and not with a view to, for resale in connection with, or
with an intent of participating directly or indirectly in, any distribution of
such Shares within the meaning of the Act, and a legend to that effect may be
placed on the certificates representing the Shares.

     (b) Other Jurisdictions. To facilitate the making of any grant of an Award
under this Plan, the Committee may provide for such special terms for Awards to
Participants who are foreign nationals or who are employed by the Company or any
Affiliate outside of the United States of America as the Committee may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom. The Company may adopt rules and procedures relating to the operation and
administration of this Plan to accommodate the specific requirements of local
laws and procedures of particular countries. Without limiting the foregoing, the
Company is specifically authorized to adopt rules and procedures regarding the
conversion of local currency, taxes, withholding procedures and handling of
stock certificates which vary with the customs and requirements of particular
countries. The Company may adopt sub-plans and establish escrow accounts and
trusts as may be appropriate or applicable to particular locations and
countries.

23. NO SHAREHOLDER RIGHTS.

     Neither a Participant nor any transferee of a Participant shall have any
rights as a shareholder of the Company with respect to any Shares underlying any
Award until the date of issuance of a share certificate to a Participant or a
transferee of a Participant for such Shares in accordance with the Company's
governing instruments and Applicable Law. Prior to the issuance of Shares
pursuant to an Award, a Participant shall not have the right to vote or to
receive dividends or any other rights as a shareholder with respect to the
Shares underlying the Award, notwithstanding its exercise in the case of Options
and SARs. No adjustment will be made for a dividend or other right that is
determined based on a record date prior to the date the stock certificate is
issued, except as otherwise specifically provided for in this Plan.

24. NO EMPLOYMENT RIGHTS.

     The Plan shall not confer upon any Participant any right to continue an
employment, service or consulting relationship with the Company, nor shall it
affect in any way a Participant's right or the Company's right to terminate the
Participant's employment, service, or consulting relationship at any time, with
or without Cause.

25. TERMINATION, RESCISSION AND RECAPTURE.

     (a) Each Award under the Plan is intended to align the Participant's
long-term interest with those of the Company. If the Participant engages in
certain activities discussed below, either during employment or after employment
with the Company terminates for any reason, the Participant is acting contrary
to the long-term interests of the Company. Accordingly, except as otherwise
expressly provided in the Award Agreement, the Company may terminate any
outstanding, unexercised, unexpired, unpaid, or deferred Awards ("Termination"),
rescind any exercise, payment or delivery pursuant to the Award ("Rescission"),
or recapture any Common Stock (whether restricted or unrestricted) or proceeds
from the Participant's sale of Shares issued pursuant to the Award
("Recapture"), if the Participant does not comply with the conditions of
subsections (b) and (c) hereof (collectively, the "Conditions").



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 16


     (b) A Participant shall not, without the Company's prior written
authorization, disclose to anyone outside the Company, or use in other than the
Company's business, any proprietary or confidential information or material, as
those or other similar terms are used in any applicable patent, confidentiality,
inventions, secrecy, or other agreement between the Participant and the Company
with regard to any such proprietary or confidential information or material.

     (c) Pursuant to any agreement between the Participant and the Company with
regard to intellectual property (including but not limited to patents,
trademarks, copyrights, trade secrets, inventions, developments, improvements,
proprietary information, confidential business and personnel information), a
Participant shall promptly disclose and assign to the Company or its designee
all right, title, and interest in such intellectual property, and shall take all
reasonable steps necessary to enable the Company to secure all right, title and
interest in such intellectual property in the United States and in any foreign
country.

     (d) Upon exercise, payment, or delivery of cash or Common Stock pursuant to
an Award, the Participant shall certify on a form acceptable to the Company that
he or she is in compliance with the terms and conditions of the Plan and, if a
severance of Continuous Service has occurred for any reason, shall state the
name and address of the Participant's then-current employer or any entity for
which the Participant performs business services and the Participant's title,
and shall identify any organization or business in which the Participant owns a
greater-than-five-percent equity interest.

     (e) If the Company determines, in its sole and absolute discretion, that
(i) a Participant has violated any of the Conditions or (ii) during his or her
Continuous Service, or within one year after its termination for any reason, a
Participant (a) has rendered services to or otherwise directly or indirectly
engaged in or assisted, any organization or business that, in the judgment of
the Company in its sole and absolute discretion, is or is working to become
competitive with the Company; (b) has solicited any non-administrative employee
of the Company to terminate employment with the Company; or (c) has engaged in
activities which are materially prejudicial to or in conflict with the interests
of the Company, including any breaches of fiduciary duty or the duty of loyalty,
then the Company may, in its sole and absolute discretion, impose a Termination,
Rescission, and/or Recapture with respect to any or all of the Participant's
relevant Awards, Shares, and the proceeds thereof.

     (f) Within ten days after receiving notice from the Company of any such
activity, the Participant shall deliver to the Company the Shares acquired
pursuant to the Award, or, if Participant has sold the Shares, the gain
realized, or payment received as a result of the rescinded exercise, payment, or
delivery; provided, that if the Participant returns Shares that the Participant
purchased pursuant to the exercise of an Option (or the gains realized from the
sale of such Common Stock), the Company shall promptly refund the exercise
price, without earnings, that the Participant paid for the Shares. Any payment
by the Participant to the Company pursuant to this Section 21 shall be made
either in cash or by returning to the Company the number of Shares that the
Participant received in connection with the rescinded exercise, payment, or
delivery. It shall not be a basis for Termination, Rescission or Recapture if
after termination of a Participant's Continuous Service, the Participant
purchases, as an investment or otherwise, stock or other securities of such an
organization or business, so long as (i) such stock or other securities are
listed upon a recognized securities exchange or traded over-the-counter, and
(ii) such investment does not represent more than a five percent (5%) equity
interest in the organization or business.

     (g) Notwithstanding the foregoing provisions of this Section, the Company
has sole and absolute discretion not to require Termination, Rescission and/or
Recapture, and its determination not to require Termination, Rescission and/or
Recapture with respect to any particular act by a particular Participant or
Award shall not in any way reduce or eliminate the Company's authority to
require Termination, Rescission and/or Recapture with respect to any other act
or Participant or Award. Nothing in this Section shall be construed to impose
obligations on the Participant to refrain from engaging in lawful competition
with the Company after the termination of employment that does not violate
subsections (b) or (c) of this Section, other than any obligations that are part
of any separate agreement between the Company and the Participant or that arise
under applicable law.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 17


     (h) All administrative and discretionary authority given to the Company
under this Section shall be exercised by the most senior human resources
executive of the Company or such other person or committee (including without
limitation the Committee) as the Committee may designate from time to time.

     (i) Notwithstanding any provision of this Section, if any provision of this
Section is determined to be unenforceable or invalid under any applicable law,
such provision will be applied to the maximum extent permitted by applicable
law, and shall automatically be deemed amended in a manner consistent with its
objectives to the extent necessary to conform to any limitations required under
applicable law. Furthermore, if any provision of this Section is illegal under
any applicable law, such provision shall be null and void to the extent
necessary to comply with applicable law.

     Notwithstanding the foregoing, but subject to any contrary terms set forth
in any Award Agreement, this Section shall not be applicable: (i) to any
Participant who is not, on the Award Date, an Employee of the Company or its
Affiliates; and (ii) to any Participant from and after his or her termination of
Continuous Service after a Change in Control.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 18


                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                   ----------

                             APPENDIX A: DEFINITIONS

                                   ----------

     As used in the Plan, the following definitions shall apply:

     "AFFILIATE" means, with respect to any Person (as defined below), any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person or the power to elect directors, whether through the ownership of
voting securities, by contract or otherwise; and the terms "affiliated,"
"controlling" and "controlled" have meanings correlative to the foregoing.

     "APPLICABLE LAW" means the legal requirements relating to the
administration of options and share-based plans under applicable U.S. federal
and state laws, the Code, any applicable stock exchange or automated quotation
system rules or regulations, and the applicable laws of any other country or
jurisdiction where Awards are granted, as such laws, rules, regulations and
requirements shall be in place from time to time.

     "AWARD" means any award made pursuant to the Plan, including awards made in
the form of an Option, an SAR, a Restricted Share, a Restricted Share Unit, an
Unrestricted Share, a Deferred Share Unit, and a Performance Award, or any
combination thereof, whether alternative or cumulative, authorized by and
granted under this Plan.

     "AWARD AGREEMENT" means any written document setting forth the terms of an
Award that has been authorized by the Committee. The Committee shall determine
the form or forms of documents to be used, and may change them from time to time
for any reason.

     "BOARD" means the Board of Directors of the Company.

     "CAUSE" for termination of a Participant's Continuous Service will exist if
the Participant is terminated from employment or other service with the Company
or an Affiliate for any of the following reasons: (i) the Participant's willful
failure to substantially perform his or her duties and responsibilities to the
Company or deliberate violation of a material Company policy; (ii) the
Participant's commission of any material act or acts of fraud, embezzlement,
dishonesty, or other willful misconduct; (iii) the Participant's material
unauthorized use or disclosure of any proprietary information or trade secrets
of the Company or any other party to whom the Participant owes an obligation of
nondisclosure as a result of his or her relationship with the Company; or (iv)
Participant's willful and material breach of any of his or her obligations under
any written agreement or covenant with the Company.

     The Committee shall in its discretion determine whether or not a
Participant is being terminated for Cause. The Committee's determination shall,
unless arbitrary and capricious, be final and binding on the Participant, the
Company, and all other affected persons. The foregoing definition does not in
any way limit the Company's ability to terminate a Participant's employment or
consulting relationship at any time, and the term "Company" will be interpreted
herein to include any Affiliate or successor thereto, if appropriate.

     "CHANGE IN CONTROL" means any of the following:

          (i) Acquisition of Controlling Interest. Any Person becomes the
     Beneficial Owner, directly or indirectly, of securities of the Company
     representing 50% or more of the combined voting power of the Company's then
     outstanding securities. In applying the preceding sentence, (i) securities
     acquired directly from the Company or its Affiliates by or for the Person
     shall not be taken into account, and (ii) an agreement to vote securities
     shall be



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 19


     disregarded unless its ultimate purpose is to cause what would otherwise be
     a Change in Control, as reasonably determined by the Board.

          (ii) Change in Board Control. During a consecutive 2-year period
     commencing after the date of adoption of this Plan, individuals who
     constituted the Board at the beginning of the period (or their approved
     replacements, as defined in the next sentence) cease for any reason to
     constitute a majority of the Board. A new Director shall be considered an
     "approved replacement" Director if his or her election (or nomination for
     election) was approved by a vote of at least a majority of the Directors
     then still in office who either were Directors at the beginning of the
     period or were themselves approved replacement Directors, but in either
     case excluding any Director whose initial assumption of office occurred as
     a result of an actual or threatened solicitation of proxies or consents by
     or on behalf of any Person other than the Board.

          (iii) Merger. The Company consummates a merger, or consolidation of
     the Company with any other corporation unless: (a) the voting securities of
     the Company outstanding immediately before the merger or consolidation
     would continue to represent (either by remaining outstanding or by being
     converted into voting securities of the surviving entity) at least 50% of
     the combined voting power of the voting securities of the Company or such
     surviving entity outstanding immediately after such merger or
     consolidation; and (b) no Person becomes the Beneficial Owner, directly or
     indirectly, of securities of the Company representing 50% or more of the
     combined voting power of the Company's then outstanding securities.

          (iv) Sale of Assets. The stockholders of the Company approve an
     agreement for the sale or disposition by the Company of all, or
     substantially all, of the Company's assets.

          (v) Liquidation or Dissolution. The stockholders of the Company
     approve a plan or proposal for liquidation or dissolution of the Company.

     Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.

     "CODE" means the U.S. Internal Revenue Code of 1986, as amended.

     "COMMITTEE" means one or more committees or subcommittees of the Board
appointed by the Board to administer the Plan in accordance with Section 4
above. With respect to any decision involving an Award intended to satisfy the
requirements of Section 162(m) of the Code, the Committee shall consist of two
or more Directors of the Company who are "outside directors" within the meaning
of Section 162(m) of the Code. With respect to any decision relating to a
Reporting Person, the Committee shall consist of two or more Directors who are
disinterested within the meaning of Rule 16b-3.

     "COMPANY" means Commerce Energy Group, Inc., a Delaware corporation;
provided, however, that in the event the Company reincorporates to another
jurisdiction, all references to the term "Company" shall refer to the Company in
such new jurisdiction.

     "CONSULTANT" means any person, including an advisor, who is engaged by the
Company or any Affiliate to render services and is compensated for such
services.

     "CONTINUOUS SERVICE" means the absence of any interruption or termination
of service as an Employee, Director, or Consultant. Continuous Service shall not
be considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Committee, provided that such
leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; (iv)
changes in status from Director to advisory director or emeritus status; or (v)
in the case of transfers between locations of the Company or



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 20


between the Company, its Affiliates or their respective successors. Changes in
status between service as an Employee, Director, and a Consultant will not
constitute an interruption of Continuous Service.

     "DEFERRED SHARE UNITS" mean Awards pursuant to Section 9 of the Plan.

     "DIRECTOR" means a member of the Board, or a member of the board of
directors of an Affiliate.

     "DISABLED" means a condition under which a Participant --

          (a) is unable to engage in any substantial gainful activity by reason
     of any medically determinable physical or mental impairment which can be
     expected to result in death or can be expected to last for a continuous
     period of not less than 12 months, or

          (b) is, by reason of any medically determinable physical or mental
     impairment which can be expected to result in death or can be expected to
     last for a continuous period of not less than 12 months, received income
     replacement benefits for a period of not less than 3 months under an
     accident or health plan covering employees of the Company.

     "ELIGIBLE PERSON" means any Consultant, Director or Employee and includes
non-Employees to whom an offer of employment has been extended.

     "EMPLOYEE" means any person whom the Company or any Affiliate classifies as
an employee (including an officer) for employment tax purposes, whether or not
that classification is correct. The payment by the Company of a director's fee
to a Director shall not be sufficient to constitute "employment" of such
Director by the Company.

     "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

     "FAIR MARKET VALUE" means, as of any date (the "Determination Date") means:
(i) the closing price of a Share on the New York Stock Exchange or the American
Stock Exchange (collectively, the "Exchange"), on the Determination Date, or, if
shares were not traded on the Determination Date, then on the nearest preceding
trading day during which a sale occurred; or (ii) if such stock is not traded on
the Exchange but is quoted on NASDAQ or a successor quotation system, (A) the
last sales price (if the stock is then listed as a National Market Issue under
The Nasdaq National Market System) or (B) the mean between the closing
representative bid and asked prices (in all other cases) for the stock on the
Determination Date as reported by NASDAQ or such successor quotation system; or
(iii) if such stock is not traded on the Exchange or quoted on NASDAQ but is
otherwise traded in the over-the-counter, the mean between the representative
bid and asked prices on the Determination Date; or (iv) if subsections (i)-(iii)
do not apply, the fair market value established in good faith by the Board.

     "GRANT DATE" has the meaning set forth in Section 14 of the Plan.

     "INCENTIVE SHARE OPTION OR ISO" hereinafter means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable Award Agreement.

     "INVOLUNTARY TERMINATION" means termination of a Participant's Continuous
Service under the following circumstances occurring on or after a Change in
Control: (i) termination without Cause by the Company or an Affiliate or
successor thereto, as appropriate; or (ii) voluntary termination by the
Participant within 60 days following (A) a material reduction in the
Participant's job responsibilities, provided that neither a mere change in title
alone nor reassignment to a substantially similar position shall constitute a
material reduction in job responsibilities; (B) an involuntary relocation of the
Participant's work site to a facility or location more than 50 miles from the
Participant's principal work site at the time of the Change in Control; or (C) a
material reduction in Participant's total compensation other than as part of an
reduction by the same percentage amount in the compensation of all other
similarly-situated Employees, Directors or Consultants.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 21


     "NON-ISO" means an Option not intended to qualify as an ISO, as designated
in the applicable Award Agreement.

     "OPTION" means any stock option granted pursuant to Section 6 of the Plan.

     "PARTICIPANT" means any holder of one or more Awards, or the Shares
issuable or issued upon exercise of such Awards, under the Plan.

     "PERFORMANCE AWARDS" mean Performance Units and Performance Compensation
Awards granted pursuant to Section 10.

     "PERFORMANCE COMPENSATION AWARDS" mean Awards granted pursuant to Section
10(b) of the Plan.

     "PERFORMANCE UNIT" means Awards granted pursuant to Section 10(a) of the
Plan which may be paid in cash, in Shares, or such combination of cash and
Shares as the Committee in its sole discretion shall determine.

     "PERSON" means any natural person, association, trust, business trust,
cooperative, corporation, general partnership, joint venture, joint-stock
company, limited partnership, limited liability company, real estate investment
trust, regulatory body, governmental agency or instrumentality, unincorporated
organization or organizational entity.

     "PLAN" means this Commerce Energy Group, Inc. 2006 Stock Incentive Plan.

     "REPORTING PERSON" means an officer, Director, or greater than ten percent
shareholder of the Company within the meaning of Rule 16a-2 under the Exchange
Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange
Act.

     "RESTRICTED SHARES" mean Shares subject to restrictions imposed pursuant to
Section 8 of the Plan.

     "RESTRICTED SHARE UNITS" mean Awards pursuant to Section 8 of the Plan.

     "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act, as
amended from time to time, or any successor provision.

     "SAR" OR "SHARE APPRECIATION RIGHT" means Awards granted pursuant to
Section 7 of the Plan.

     "SHARE" means a share of common stock of the Company, par value $0.001, as
adjusted in accordance with Section 13 of the Plan.

     "TEN PERCENT HOLDER" means a person who owns stock representing more than
ten percent (10%) of the combined voting power of all classes of stock of the
Company or any Affiliate.

     "UNRESTRICTED SHARES" mean Shares awarded pursuant to Section 8 of the
Plan.


                                                                       EXHIBIT B

MEMORANDUM

                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                  COMMON STOCK
                               ($0.001 PAR VALUE)

          This Memorandum relates to shares of common stock, $0.001 par value
per share (the "Common Stock"), of Commerce Energy Group, Inc., a Delaware
corporation (the "Company"), issuable in satisfaction of awards made under
Commerce Energy Group, Inc.'s 2006 Stock Incentive Plan (the "Plan") to eligible
employees, consultants and directors of the Company. Stock options, share
appreciation rights, restricted shares, restricted share units, unrestricted
shares, deferred share units, performance shares and performance units may be
awarded under the Plan.

                                   ----------

                   The date of this Memorandum is May 8, 2006.

                                   ----------

  THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE
    BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS MEMORANDUM AND THE
   DOCUMENTS INCORPORATED BY REFERENCE IN THIS MEMORANDUM CONSTITUTE A SECTION
                   10(A) PROSPECTUS UNDER THE SECURITIES ACT.

                           COMMERCE ENERGY GROUP, INC.
                           600 Anton Blvd., Suite 200
                          Costa Mesa, California 92626



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 2


          This Memorandum does not constitute an offer to sell or a solicitation
of an offer to buy any securities other than the registered securities to which
it relates or an offer to sell or a solicitation of an offer to buy any
securities in any jurisdiction to any person to whom it is unlawful to make such
an offer or solicitation.

          Neither delivery of this Memorandum nor any sale made thereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company or in any information included therein, in
any supplement thereto or in any document incorporated by reference since the
date hereof or thereof.

                                     GENERAL

          This Memorandum relates to shares of common stock, $0.001 par value
per share (the "Common Stock"), of Commerce Energy Group, Inc., a Delaware
corporation (the "Company"), issuable in satisfaction of awards under the
Company's 2006 Stock Incentive Plan (the "Plan") to eligible employees,
consultants and directors of the Company. Stock options, share appreciation
rights, restricted shares, restricted share units, unrestricted shares, deferred
share units, performance shares and performance units may be awarded under the
Plan, though only employees may receive stock options classified as incentive
stock options ("ISOs") which are intended to satisfy the requirements of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). Options
awarded under the Plan may be either ISOs or non-qualified stock options
("non-ISOs") which are not intended to qualify as ISOs. Share appreciation
rights may be granted in tandem with options or as free-standing awards.
Options, share appreciation rights, restricted shares, restricted share units,
unrestricted shares, deferred shares, and performance awards vest in accordance
with the terms established by the committee administering the Plan, which may
include conditions relating to completion of a specified period of service or
achievement of performance standards.

          Any person deemed to be an "affiliate" of the Company may re-offer or
resell shares of Common Stock acquired pursuant to the Plan without registration
under the Securities Act of 1933, as amended (the "Act"), upon compliance with
Rule 144 under the Act. Participants who are not "affiliates" of the Company may
resell the shares of Common Stock acquired pursuant to the Plan without the need
to comply with Rule 144. For purposes of Rule 144, an "affiliate" of an issuer
is a person that directly or indirectly, through the use of one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer. Acquisitions of shares, exercises of options or other transactions
involving shares of Common Stock pursuant to the Plan by our directors,
executive officers or a 10% stockholder could be subject to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act").

          The Plan became effective as of January 26, 2006, the date that it was
approved by the Company's Stockholders. As currently operating, the Plan is not
qualified under Section 401(a) of the Code and is not subject to the provisions
of the Employee Retirement Income Security Act of 1974. The complete text of the
Plan appears below under the caption "2006 Stock Incentive Plan."

                            2006 STOCK INCENTIVE PLAN

1. ESTABLISHMENT, PURPOSE, AND TYPES OF AWARDS

     Commerce Energy Group, Inc. (the "Company") hereby establishes this
equity-based incentive compensation plan to be known as the "Commerce Energy
Group, Inc. 2006 Stock Incentive Plan"



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 3


(hereinafter referred to as the "Plan"), in order to provide incentives and
awards to select employees, directors, consultants, and advisors of the Company
and its Affiliates.

     The Plan permits the granting of the following types of awards ("Awards"),
according to the Sections of the Plan listed here:

     Section 6    Options
     Section 7    Share Appreciation Rights
     Section 8    Restricted Shares, Restricted Share Units, and Unrestricted
                  Shares
     Section 9    Deferred Share Units
     Section 10   Performance Awards

     The Plan is not intended to affect and shall not affect any stock options,
equity-based compensation, or other benefits that the Company or its Affiliates
may have provided, or may separately provide in the future pursuant to any
agreement, plan, or program that is independent of this Plan.

2. DEFINED TERMS

     Terms in the Plan that begin with an initial capital letter have the
defined meaning set forth in APPENDIX A, unless defined elsewhere in this Plan
or the context of their use clearly indicates a different meaning.

3. SHARES SUBJECT TO THE PLAN

     Subject to the provisions of Section 13 of the Plan, the maximum number of
Shares that the Company may issue for all Awards is 1,453,334 Shares, provided
that the Company shall not make additional awards under the Commonwealth Energy
Corporation 1999 Equity Incentive Plan, as amended and assumed by Commerce
Energy Group, Inc. For all Awards, the Shares issued pursuant to the Plan may be
authorized but unissued Shares, or Shares that the Company has reacquired or
otherwise holds in treasury.

     Shares that are subject to an Award that for any reason expires, is
forfeited, is cancelled, or becomes unexercisable, and Shares that are for any
other reason not paid or delivered under the Plan shall again, except to the
extent prohibited by Applicable Law, be available for subsequent Awards under
the Plan. In addition, the Committee may make future Awards with respect to
Shares that the Company retains from otherwise delivering pursuant to an Award
either (i) as payment of the exercise price of an Award, or (ii) in order to
satisfy the withholding or employment taxes due upon the grant, exercise,
vesting or distribution of an Award. Notwithstanding the foregoing, but subject
to adjustments pursuant to Section 13 below, the number of Shares that are
available for ISO Awards shall be determined, to the extent required under
applicable tax laws, by reducing the number of Shares designated in the
preceding paragraph by the number of Shares granted pursuant to Awards (whether
or not Shares are issued pursuant to such Awards), provided that any Shares that
are either issued or purchased under the Plan and forfeited back to the Plan, or
surrendered in payment of the Exercise Price for an Award shall be available for
issuance pursuant to future ISO Awards.

4. ADMINISTRATION

     (a) General. The Committee shall administer the Plan in accordance with its
terms, provided that the Board may act in lieu of the Committee on any matter.
The Committee shall hold meetings at such times and places as it may determine
and shall make such rules and regulations for the conduct of its business as



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 4


it deems advisable. In the absence of a duly appointed Committee or if the Board
otherwise chooses to act in lieu of the Committee, the Board shall function as
the Committee for all purposes of the Plan.

     (b) Committee Composition. The Board shall appoint the members of the
Committee. If and to the extent permitted by Applicable Law, the Committee may
authorize one or more Reporting Persons (or other officers) to make Awards to
Eligible Persons who are not Reporting Persons (or other officers whom the
Committee has specifically authorized to make Awards). The Board may at any time
appoint additional members to the Committee, remove and replace members of the
Committee with or without Cause, and fill vacancies on the Committee however
caused.

     (c) Powers of the Committee. Subject to the provisions of the Plan, the
Committee shall have the authority, in its sole discretion:

          (i) to determine Eligible Persons to whom Awards shall be granted from
     time to time and the number of Shares, units, or SARs to be covered by each
     Award;

          (ii) to determine, from time to time, the Fair Market Value of Shares;

          (iii) to determine, and to set forth in Award Agreements, the terms
     and conditions of all Awards, including any applicable exercise or purchase
     price, the installments and conditions under which an Award shall become
     vested (which may be based on performance), terminated, expired, cancelled,
     or replaced, and the circumstances for vesting acceleration or waiver of
     forfeiture restrictions, and other restrictions and limitations;

          (iv) to approve the forms of Award Agreements and all other documents,
     notices and certificates in connection therewith which need not be
     identical either as to type of Award or among Participants;

          (v) to construe and interpret the terms of the Plan and any Award
     Agreement, to determine the meaning of their terms, and to prescribe,
     amend, and rescind rules and procedures relating to the Plan and its
     administration; and

          (vi) in order to fulfill the purposes of the Plan and without amending
     the Plan, modify, cancel, or waive the Company's rights with respect to any
     Awards, to adjust or to modify Award Agreements for changes in Applicable
     Law, and to recognize differences in foreign law, tax policies, or customs;
     and

          (vii) to make all other interpretations and to take all other actions
     that the Committee may consider necessary or advisable to administer the
     Plan or to effectuate its purposes.

     Subject to Applicable Law and the restrictions set forth in the Plan, the
Committee may delegate administrative functions to individuals who are Reporting
Persons, officers, or Employees of the Company or its Affiliates.

     (d) Deference to Committee Determinations. The Committee shall have the
discretion to interpret or construe ambiguous, unclear, or implied (but omitted)
terms in any fashion it deems to be appropriate in its sole discretion, and to
make any findings of fact needed in the administration of the Plan or Award
Agreements. The Committee's prior exercise of its discretionary authority shall
not obligate it to exercise its authority in a like fashion thereafter. The
Committee's interpretation and construction of any provision of the Plan, or of
any Award or Award Agreement, shall be final, binding, and conclusive. The
validity of any such interpretation, construction, decision or finding of fact
shall not be given de novo review if



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 5


challenged in court, by arbitration, or in any other forum, and shall be upheld
unless clearly made in bad faith or materially affected by fraud.

     (e) No Liability; Indemnification. Neither the Board nor any Committee
member, nor any Person acting at the direction of the Board or the Committee,
shall be liable for any act, omission, interpretation, construction or
determination made in good faith with respect to the Plan, any Award or any
Award Agreement. The Company and its Affiliates shall pay or reimburse any
member of the Committee, as well as any Director, Employee, or Consultant who
takes action in connection with the Plan, for all expenses incurred with respect
to the Plan, and to the full extent allowable under Applicable Law shall
indemnify each and every one of them for any claims, liabilities, and costs
(including reasonable attorney's fees) arising out of their good faith
performance of duties under the Plan. The Company and its Affiliates may obtain
liability insurance for this purpose.

5. ELIGIBILITY

     (a) General Rule. The Committee may grant ISOs only to Employees (including
officers who are Employees) of the Company or an Affiliate that is a "parent
corporation" or "subsidiary corporation" within the meaning of Section 424 of
the Code, and may grant all other Awards to any Eligible Person. A Participant
who has been granted an Award may be granted an additional Award or Awards if
the Committee shall so determine, if such person is otherwise an Eligible Person
and if otherwise in accordance with the terms of the Plan.

     (b) Grant of Awards. Subject to the express provisions of the Plan, the
Committee shall determine from the class of Eligible Persons those individuals
to whom Awards under the Plan may be granted, the number of Shares subject to
each Award, the price (if any) to be paid for the Shares or the Award and, in
the case of Performance Awards, in addition to the matters addressed in Section
10 below, the specific objectives, goals and performance criteria that further
define the Performance Award. Each Award shall be evidenced by an Award
Agreement signed by the Company and, if required by the Committee, by the
Participant. The Award Agreement shall set forth the material terms and
conditions of the Award established by the Committee, and each Award shall be
subject to the terms and conditions set forth in Sections 23, 24, and 25 unless
otherwise specifically provided in an Award Agreement.

     (c) Limits on Awards. During any calendar year, no Participant may receive
Options and SARs that relate to more than 1,000,000 Shares. The Committee will
adjust this limitation pursuant to Section 13 below.

     (d) Replacement Awards. Subject to Applicable Laws (including any
associated Shareholder approval requirements), the Committee may, in its sole
discretion and upon such terms as it deems appropriate, require as a condition
of the grant of an Award to a Participant that the Participant surrender for
cancellation some or all of the Awards that have previously been granted to the
Participant under this Plan or otherwise. An Award that is conditioned upon such
surrender may or may not be the same type of Award, may cover the same (or a
lesser or greater) number of Shares as such surrendered Award, may have other
terms that are determined without regard to the terms or conditions of such
surrendered Award, and may contain any other terms that the Committee deems
appropriate. In the case of Options, these other terms may not involve an
Exercise Price that is lower than the Exercise Price of the surrendered Option
unless the Company's shareholders approve the grant itself or the program under
which the grant is made pursuant to the Plan.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 6


6. OPTION AWARDS

     (a) Types; Documentation. The Committee may in its discretion grant ISOs to
any Employee and Non-ISOs to any Eligible Person, and shall evidence any such
grants in an Award Agreement that is delivered to the Participant. Each Option
shall be designated in the Award Agreement as an ISO or a Non-ISO, and the same
Award Agreement may grant both types of Options. At the sole discretion of the
Committee, any Option may be exercisable, in whole or in part, immediately upon
the grant thereof, or only after the occurrence of a specified event, or only in
installments, which installments may vary. Options granted under the Plan may
contain such terms and provisions not inconsistent with the Plan that the
Committee shall deem advisable in its sole and absolute discretion.

     (b) ISO $100,000 Limitation. To the extent that the aggregate Fair Market
Value of Shares with respect to which Options designated as ISOs first become
exercisable by a Participant in any calendar year (under this Plan and any other
plan of the Company or any Affiliate) exceeds $100,000, such excess Options
shall be treated as Non-ISOs. For purposes of determining whether the $100,000
limit is exceeded, the Fair Market Value of the Shares subject to an ISO shall
be determined as of the Grant Date. In reducing the number of Options treated as
ISOs to meet the $100,000 limit, the most recently granted Options shall be
reduced first. In the event that Section 422 of the Code is amended to alter the
limitation set forth therein, the limitation of this Section 6(b) shall be
automatically adjusted accordingly.

     (c) Term of Options. Each Award Agreement shall specify a term at the end
of which the Option automatically expires, subject to earlier termination
provisions contained in Section 6(h) hereof; provided, that, the term of any
Option may not exceed ten years from the Grant Date. In the case of an ISO
granted to an Employee who is a Ten Percent Holder on the Grant Date, the term
of the ISO shall not exceed five years from the Grant Date.

     (d) Exercise Price. The exercise price of an Option shall be determined by
the Committee in its sole discretion and shall be set forth in the Award
Agreement, provided that (i) if an ISO is granted to an Employee who on the
Grant Date is a Ten Percent Holder, the per Share exercise price shall not be
less than 110% of the Fair Market Value per Share on the Grant Date, and (ii)
for all other Options, such per Share exercise price shall not be less than 100%
of the Fair Market Value per Share on the Grant Date. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of the federal securities laws applicable to proxy statement
disclosures.

     (e) Exercise of Option. The times, circumstances and conditions under which
an Option shall be exercisable shall be determined by the Committee in its sole
discretion and set forth in the Award Agreement. The Committee shall have the
discretion to determine whether and to what extent the vesting of Options shall
be tolled during any unpaid leave of absence; provided, however, that in the
absence of such determination, vesting of Options shall be tolled during any
such leave approved by the Company.

     (f) Minimum Exercise Requirements. An Option may not be exercised for a
fraction of a Share. The Committee may require in an Award Agreement that an
Option be exercised as to a minimum number of Shares, provided that such
requirement shall not prevent a Participant from purchasing the full number of
Shares as to which the Option is then exercisable.

     (g) Methods of Exercise. Prior to its expiration pursuant to the terms of
the applicable Award Agreement, and subject to the times, circumstances and
conditions for exercise contained in the applicable Award Agreement, each Option
may be exercised, in whole or in part (provided that the Company shall not be
required to issue fractional shares), by delivery of written notice of exercise
to the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 7


secretary of the Company accompanied by the full exercise price of the Shares
being purchased. In the case of an ISO, the Committee shall determine the
acceptable methods of payment on the Grant Date and it shall be included in the
applicable Award Agreement. The methods of payment that the Committee may in its
discretion accept or commit to accept in an Award Agreement include:

          (i) cash or check payable to the Company (in U.S. dollars);

          (ii) other Shares that (A) are owned by the Participant who is
     purchasing Shares pursuant to an Option, (B) have a Fair Market Value on
     the date of surrender equal to the aggregate exercise price of the Shares
     as to which the Option is being exercised, (C) were not acquired by such
     Participant pursuant to the exercise of an Option, unless such Shares have
     been owned by such Participant for at least six months or such other period
     as the Committee may determine, (D) are all, at the time of such surrender,
     free and clear of any and all claims, pledges, liens and encumbrances, or
     any restrictions which would in any manner restrict the transfer of such
     shares to or by the Company (other than such restrictions as may have
     existed prior to an issuance of such Shares by the Company to such
     Participant), and (E) are duly endorsed for transfer to the Company;

          (iii) a cashless exercise program that the Committee may approve, from
     time to time in its discretion, pursuant to which a Participant may
     concurrently provide irrevocable instructions (A) to such Participant's
     broker or dealer to effect the immediate sale of the purchased Shares and
     remit to the Company, out of the sale proceeds available on the settlement
     date, sufficient funds to cover the exercise price of the Option plus all
     applicable taxes required to be withheld by the Company by reason of such
     exercise, and (B) to the Company to deliver the certificates for the
     purchased Shares directly to such broker or dealer in order to complete the
     sale; or

          (iv) any combination of the foregoing methods of payment.

     The Company shall not be required to deliver Shares pursuant to the
exercise of an Option until payment of the full exercise price therefore is
received by the Company.

     (h) Termination of Continuous Service. The Committee may establish and set
forth in the applicable Award Agreement the terms and conditions on which an
Option shall remain exercisable, if at all, following termination of a
Participant's Continuous Service. The Committee may waive or modify these
provisions at any time. To the extent that a Participant is not entitled to
exercise an Option at the date of his or her termination of Continuous Service,
or if the Participant (or other person entitled to exercise the Option) does not
exercise the Option to the extent so entitled within the time specified in the
Award Agreement or below (as applicable), the Option shall terminate and the
Shares underlying the unexercised portion of the Option shall revert to the Plan
and become available for future Awards. In no event may any Option be exercised
after the expiration of the Option term as set forth in the Award Agreement.

     The following provisions shall apply to the extent an Award Agreement does
not specify the terms and conditions upon which an Option shall terminate when
there is a termination of a Participant's Continuous Service:

          (i) Termination other than Upon Disability or Death or for Cause. In
     the event of termination of a Participant's Continuous Service (other than
     as a result of Participant's death, disability, retirement or termination
     for Cause), the Participant shall have the right to exercise an Option at
     any time within 90 days following such termination to the extent the
     Participant was entitled to exercise such Option at the date of such
     termination.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 8


          (ii) Disability. In the event of termination of a Participant's
     Continuous Service as a result of his or her being Disabled, the
     Participant shall have the right to exercise an Option at any time within
     one year following such termination to the extent the Participant was
     entitled to exercise such Option at the date of such termination.

          (iii) Retirement. In the event of termination of a Participant's
     Continuous Service as a result of Participant's retirement, the Participant
     shall have the right to exercise the Option at any time within six months
     following such termination to the extent the Participant was entitled to
     exercise such Option at the date of such termination.

          (iv) Death. In the event of the death of a Participant during the
     period of Continuous Service since the Grant Date of an Option, or within
     thirty days following termination of the Participant's Continuous Service,
     the Option may be exercised, at any time within one year following the date
     of the Participant's death, by the Participant's estate or by a person who
     acquired the right to exercise the Option by bequest or inheritance, but
     only to the extent the right to exercise the Option had vested at the date
     of death or, if earlier, the date the Participant's Continuous Service
     terminated.

          (v) Cause. If the Committee determines that a Participant's Continuous
     Service terminated due to Cause, the Participant shall immediately forfeit
     the right to exercise any Option, and it shall be considered immediately
     null and void.

     (i) Reverse Vesting. The Committee in its sole discretion may allow a
Participant to exercise unvested Options, in which case the Shares then issued
shall be Restricted Shares having analogous vesting restrictions to the unvested
Options.

     (j) Buyout Provisions. The Committee may at any time offer to buy out an
Option, in exchange for a payment in cash or Shares, based on such terms and
conditions as the Committee shall establish and communicate to the Participant
at the time that such offer is made.

7. SHARE APPRECIATE RIGHTS (SARS)

     (a) Grants. The Committee may in its discretion grant Share Appreciation
Rights to any Eligible Person, in any of the following forms:

          (i) SARs related to Options. The Committee may grant SARs either
     concurrently with the grant of an Option or with respect to an outstanding
     Option, in which case the SAR shall extend to all or a portion of the
     Shares covered by the related Option. An SAR shall entitle the Participant
     who holds the related Option, upon exercise of the SAR and surrender of the
     related Option, or portion thereof, to the extent the SAR and related
     Option each were previously unexercised, to receive payment of an amount
     determined pursuant to Section 7(e) below. Any SAR granted in connection
     with an ISO will contain such terms as may be required to comply with the
     provisions of Section 422 of the Code and the regulations promulgated
     thereunder.

          (ii) SARs Independent of Options. The Committee may grant SARs which
     are independent of any Option subject to such conditions as the Committee
     may in its discretion determine, which conditions will be set forth in the
     applicable Award Agreement.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 9


          (iii) Limited SARs. The Committee may grant SARs exercisable only upon
     or in respect of a Change in Control or any other specified event, and such
     limited SARs may relate to or operate in tandem or combination with or
     substitution for Options or other SARs, or on a stand-alone basis, and may
     be payable in cash or Shares based on the spread between the exercise price
     of the SAR, and (A) a price based upon or equal to the Fair Market Value of
     the Shares during a specified period, at a specified time within a
     specified period before, after or including the date of such event, or (B)
     a price related to consideration payable to Company's shareholders
     generally in connection with the event.

     (b) Exercise Price. The per Share exercise price of an SAR shall be
determined in the sole discretion of the Committee, shall be set forth in the
applicable Award Agreement, and shall be no less than 100% of the Fair Market
Value of one Share. The exercise price of an SAR related to an Option shall be
the same as the exercise price of the related Option. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of federal securities laws applicable to proxy statement
disclosures.

     (c) Exercise of SARs. Unless the Award Agreement otherwise provides, an SAR
related to an Option will be exercisable at such time or times, and to the
extent, that the related Option will be exercisable; provided that the Award
Agreement shall not, without the approval of the shareholders of the Company,
provide for a vesting period for the exercise of the SAR that is more favorable
to the Participant than the exercise period for the related Option. An SAR may
not have a term exceeding ten years from its Grant Date. An SAR granted
independently of any other Award will be exercisable pursuant to the terms of
the Award Agreement, but shall not, without the approval of the shareholders of
the Company, provide for a vesting period for the exercise of the SAR that is
more favorable to the Participant than the exercise period for the related
Option. Whether an SAR is related to an Option or is granted independently, the
SAR may only be exercised when the Fair Market Value of the Shares underlying
the SAR exceeds the exercise price of the SAR.

     (d) Effect on Available Shares. All SARs that may be settled in shares of
the Company's stock shall be counted in full against the number of shares
available for award under the Plan, regardless of the number of shares actually
issued upon settlement of the SARs.

     (e) Payment. Upon exercise of an SAR related to an Option and the attendant
surrender of an exercisable portion of any related Award, the Participant will
be entitled to receive payment of an amount determined by multiplying --

          (i) the excess of the Fair Market Value of a Share on the date of
     exercise of the SAR over the exercise price per Share of the SAR, by

          (ii) the number of Shares with respect to which the SAR has been
     exercised.

     Notwithstanding the foregoing, an SAR granted independently of an Option
(i) may limit the amount payable to the Participant to a percentage, specified
in the Award Agreement but not exceeding one-hundred percent (100%), of the
amount determined pursuant to the preceding sentence, and (ii) shall be subject
to any payment or other restrictions that the Committee may at any time impose
in its discretion, including restrictions intended to conform the SARs with
Section 409A of the Code.

     (f) Form and Terms of Payment. Subject to Applicable Law, the Committee
may, in its sole discretion, settle the amount determined under Section 7(e)
above solely in cash, solely in Shares (valued at their Fair Market Value on the
date of exercise of the SAR), or partly in cash and partly in Shares, with



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 10


cash paid in lieu of fractional shares. Unless otherwise provided in an Award
Agreement, all SARs shall be settled in Shares as soon as practicable after
exercise.

     (g) Termination of Employment or Consulting Relationship. The Committee
shall establish and set forth in the applicable Award Agreement the terms and
conditions on which an SAR shall remain exercisable, if at all, following
termination of a Participant's Continuous Service. The provisions of Section
6(h) above shall apply to the extent an Award Agreement does not specify the
terms and conditions upon which an SAR shall terminate when there is a
termination of a Participant's Continuous Service.

     (h) Buy out. The Committee has the same discretion to buy out SARs as it
has to take such actions pursuant to Section 6(j) above with respect to Options.

8. RESTRICTED SHARES, RESTRICTED SHARE UNITS, AND UNRESTRICTED SHARES

     (a) Grants. The Committee may in its sole discretion grant restricted
shares ("Restricted Shares") to any Eligible Person and shall evidence such
grant in an Award Agreement that is delivered to the Participant and that sets
forth the number of Restricted Shares, the purchase price for such Restricted
Shares (if any), and the terms upon which the Restricted Shares may become
vested. In addition, the Company may in its discretion grant the right to
receive Shares after certain vesting requirements are met ("Restricted Share
Units") to any Eligible Person and shall evidence such grant in an Award
Agreement that is delivered to the Participant which sets forth the number of
Shares (or formula, that may be based on future performance or conditions, for
determining the number of Shares) that the Participant shall be entitled to
receive upon vesting and the terms upon which the Shares subject to a Restricted
Share Unit may become vested. The Committee may condition any Award of
Restricted Shares or Restricted Share Units to a Participant on receiving from
the Participant such further assurances and documents as the Committee may
require to enforce the restrictions. In addition, the Committee may grant Awards
hereunder in the form of unrestricted shares ("Unrestricted Shares"), which
shall vest in full upon the date of grant or such other date as the Committee
may determine or which the Committee may issue pursuant to any program under
which one or more Eligible Persons (selected by the Committee in its sole
discretion) elect to receive Unrestricted Shares in lieu of cash bonuses that
would otherwise be paid.

     (b) Vesting and Forfeiture. The Committee shall set forth in an Award
Agreement granting Restricted Shares or Restricted Share Units, the terms and
conditions under which the Participant's interest in the Restricted Shares or
the Shares subject to Restricted Share Units will become vested and
non-forfeitable. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, upon termination of a Participant's Continuous
Service for any other reason, the Participant shall forfeit his or her
Restricted Shares and Restricted Share Units; provided that if a Participant
purchases the Restricted Shares and forfeits them for any reason, the Company
shall return the purchase price to the Participant only if and to the extent set
forth in an Award Agreement.

     (c) Issuance of Restricted Shares Prior to Vesting. The Company shall issue
stock certificates that evidence Restricted Shares pending the lapse of
applicable restrictions, and that bear a legend making appropriate reference to
such restrictions. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, the Company or a third party that the Company
designates shall hold such Restricted Shares and any dividends that accrue with
respect to Restricted Shares pursuant to Section 8(e) below.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 11


     (d) Issuance of Shares upon Vesting. As soon as practicable after vesting
of a Participant's Restricted Shares (or Shares underlying Restricted Share
Units) and the Participant's satisfaction of applicable tax withholding
requirements, the Company shall release to the Participant, free from the
vesting restrictions, one Share for each vested Restricted Share (or issue one
Share free of the vesting restriction for each vested Restricted Share Unit),
unless an Award Agreement provides otherwise. No fractional shares shall be
distributed, and cash shall be paid in lieu thereof.

     (e) Dividends Payable on Vesting. Whenever Shares are released to a
Participant or duly-authorized transferee pursuant to Section 8(d) above as a
result of the vesting of Restricted Shares or the Shares underlying Restricted
Share Units are issued to a Participant pursuant to Section 8(d) above, such
Participant or duly-authorized transferee shall also be entitled to receive
(unless otherwise provided in the Award Agreement), with respect to each Share
released or issued, an amount equal to any cash dividends (plus, in the sole
discretion of the Committee, simple interest at a rate as the Committee may
determine) and a number of Shares equal to any stock dividends, which were
declared and paid to the holders of Shares between the Grant Date and the date
such Share is released from the vesting restrictions in the case of Restricted
Shares or issued in the case of Restricted Share Units.

     (f) Section 83(b) Elections. A Participant may make an election under
Section 83(b) of the Code (the "Section 83(b) Election") with respect to
Restricted Shares. If a Participant who has received Restricted Share Units
provides the Committee with written notice of his or her intention to make a
Section 83(b) Election with respect to the Shares subject to such Restricted
Share Units, the Committee may in its discretion convert the Participant's
Restricted Share Units into Restricted Shares, on a one-for-one basis, in full
satisfaction of the Participant's Restricted Share Unit Award. The Participant
may then make a Section 83(b) Election with respect to those Restricted Shares.
Shares with respect to which a Participant makes a Section 83(b) Election shall
not be eligible for deferral pursuant to Section 9 below.

     (g) Deferral Elections. At any time within the thirty-day period (or other
shorter or longer period that the Committee selects in its sole discretion) in
which a Participant who is a member of a select group of management or highly
compensated employees (within the meaning of the Code) receives an Award of
either Restricted Shares or Restricted Share Units, the Committee may permit the
Participant to irrevocably elect, on a form provided by and acceptable to the
Committee, to defer the receipt of all or a percentage of the Shares that would
otherwise be transferred to the Participant upon the vesting of such Award. If
the Participant makes this election, the Shares subject to the election, and any
associated dividends and interest, shall be credited to an account established
pursuant to Section 9 hereof on the date such Shares would otherwise have been
released or issued to the Participant pursuant to Section 8(d) above.

9. DEFERRED SHARE UNITS

     (a) Elections to Defer. The Committee may permit any Eligible Person who is
a Director, Consultant or member of a select group of management or highly
compensated employees (within the meaning of the Code) to irrevocably elect, on
a form provided by and acceptable to the Committee (the "Election Form"), to
forego the receipt of cash or other compensation (including the Shares
deliverable pursuant to any Award other than Restricted Shares for which a
Section 83(b) Election has been made), and in lieu thereof to have the Company
credit to an internal Plan account (the "Account") a number of deferred share
units ("Deferred Share Units") having a Fair Market Value equal to the Shares
and other compensation deferred. These credits will be made at the end of each
calendar month during which compensation is deferred. Each Election Form shall
take effect on the first day of the next calendar year (or on the first day of
the next calendar month in the case of an initial election by a Participant who
first becomes eligible to



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 12


defer hereunder) after its delivery to the Company, subject to Section 8(g)
regarding deferral of Restricted Shares and Restricted Share Units and to
Section 10(e) regarding deferral of Performance Awards, unless the Company sends
the Participant a written notice explaining why the Election Form is invalid
within five business days after the Company receives it. Notwithstanding the
foregoing sentence: (i) Election Forms shall be ineffective with respect to any
compensation that a Participant earns before the date on which the Company
receives the Election Form, and (ii) the Committee may unilaterally make awards
in the form of Deferred Share Units, regardless of whether or not the
Participant foregoes other compensation.

     (b) Vesting. Unless an Award Agreement expressly provides otherwise, each
Participant shall be 100% vested at all times in any Shares subject to Deferred
Share Units.

     (c) Issuances of Shares. The Company shall provide a Participant with one
Share for each Deferred Share Unit in five substantially equal annual
installments that are issued before the last day of each of the five calendar
years that end after the date on which the Participant's Continuous Service
terminates, unless --

          (i) the Participant has properly elected a different form of
     distribution, on a form approved by the Committee, that permits the
     Participant to select any combination of a lump sum and annual installments
     that are completed within ten years following termination of the
     Participant's Continuous Service, and

          (ii) the Company received the Participant's distribution election form
     at the time the Participant elects to defer the receipt of cash or other
     compensation pursuant to Section 9(a), provided that such election may be
     changed through any subsequent election that (i) is delivered to the
     Company at least one year before the date on which distributions are
     otherwise scheduled to commence pursuant to the Participant's election, and
     (ii) defers the commencement of distributions by at least five years from
     the originally scheduled commencement date.

     Fractional shares shall not be issued, and instead shall be paid out in
cash.

     (d) Crediting of Dividends. Whenever Shares are issued to a Participant
pursuant to Section 9(c) above, such Participant shall also be entitled to
receive, with respect to each Share issued, a cash amount equal to any cash
dividends (plus simple interest at a rate of five percent per annum, or such
other reasonable rate as the Committee may determine), and a number of Shares
equal to any stock dividends which were declared and paid to the holders of
Shares between the Grant Date and the date such Share is issued.

     (e) Emergency Withdrawals. In the event a Participant suffers an
unforeseeable emergency within the contemplation of this Section and Section
409A of the Code, the Participant may apply to the Company for an immediate
distribution of all or a portion of the Participant's Deferred Share Units. The
unforeseeable emergency must result from a sudden and unexpected illness or
accident of the Participant, the Participant's spouse, or a dependent (within
the meaning of Section 152(a) of the Code) of the Participant, casualty loss of
the Participant's property, or other similar extraordinary and unforeseeable
conditions beyond the control of the Participant. Examples of purposes which are
not considered unforeseeable emergencies include post-secondary school expenses
or the desire to purchase a residence. In no event will a distribution be made
to the extent the unforeseeable emergency could be relieved through
reimbursement or compensation by insurance or otherwise, or by liquidation of
the Participant's nonessential assets to the extent such liquidation would not
itself cause a severe financial hardship. The



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 13


amount of any distribution hereunder shall be limited to the amount necessary to
relieve the Participant's unforeseeable emergency plus amounts necessary to pay
taxes reasonably anticipated as a result of the distribution. The Committee
shall determine whether a Participant has a qualifying unforeseeable emergency
and the amount which qualifies for distribution, if any. The Committee may
require evidence of the purpose and amount of the need, and may establish such
application or other procedures as it deems appropriate.

     (f) Unsecured Rights to Deferred Compensation. A Participant's right to
Deferred Share Units shall at all times constitute an unsecured promise of the
Company to pay benefits as they come due. The right of the Participant or the
Participant's duly-authorized transferee to receive benefits hereunder shall be
solely an unsecured claim against the general assets of the Company. Neither the
Participant nor the Participant's duly-authorized transferee shall have any
claim against or rights in any specific assets, shares, or other funds of the
Company.

10. PERFORMANCE AWARDS

     (a) Performance Units. Subject to the limitations set forth in paragraph
(c) hereof, the Committee may in its discretion grant Performance Units to any
Eligible Person and shall evidence such grant in an Award Agreement that is
delivered to the Participant which sets forth the terms and conditions of the
Award.

     (b) Performance Compensation Awards. Subject to the limitations set forth
in paragraph (c) hereof, the Committee may, at the time of grant of a
Performance Unit, designate such Award as a "Performance Compensation Award"
(payable in cash or Shares) in order that such Award constitutes "qualified
performance-based compensation" under Code Section 162(m), in which event the
Committee shall have the power to grant such Performance Compensation Award upon
terms and conditions that qualify it as "qualified performance-based
compensation" within the meaning of Code Section 162(m). With respect to each
such Performance Compensation Award, the Committee shall establish, in writing
within the time required under Code Section 162(m), a "Performance Period,"
"Performance Measure(s)", and "Performance Formula(e)" (each such term being
hereinafter defined). Once established for a Performance Period, the Performance
Measure(s) and Performance Formula(e) shall not be amended or otherwise modified
to the extent such amendment or modification would cause the compensation
payable pursuant to the Award to fail to constitute qualified performance-based
compensation under Code Section 162(m).

     A Participant shall be eligible to receive payment in respect of a
Performance Compensation Award only to the extent that the Performance
Measure(s) for such Award is achieved and the Performance Formula(e) as applied
against such Performance Measure(s) determines that all or some portion of such
Participant's Award has been earned for the Performance Period. As soon as
practicable after the close of each Performance Period, the Committee shall
review and certify in writing whether, and to what extent, the Performance
Measure(s) for the Performance Period have been achieved and, if so, determine
and certify in writing the amount of the Performance Compensation Award to be
paid to the Participant and, in so doing, may use negative discretion to
decrease, but not increase, the amount of the Award otherwise payable to the
Participant based upon such performance.

     (c) Limitations on Awards. The maximum Performance Unit Award and the
maximum Performance Compensation Award that any one Participant may receive for
any one Performance Period shall not together exceed 1,000,000 Shares and
$1,000,000 in cash. The Committee shall have the discretion to provide in any
Award Agreement that any amounts earned in excess of these limitations will
either be



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 14


credited as Deferred Share Units, or as deferred cash compensation under a
separate plan of the Company (provided in the latter case that such deferred
compensation either bears a reasonable rate of interest or has a value based on
one or more predetermined actual investments). Any amounts for which payment to
the Participant is deferred pursuant to the preceding sentence shall be paid to
the Participant in a future year or years not earlier than, and only to the
extent that, the Participant is either not receiving compensation in excess of
these limits for a Performance Period, or is not subject to the restrictions set
forth under Section 162(b) of the Code.

     (d) Definitions.

          (i) "Performance Formula" means, for a Performance Period, one or more
     objective formulas or standards established by the Committee for purposes
     of determining whether or the extent to which an Award has been earned
     based on the level of performance attained or to be attained with respect
     to one or more Performance Measure(s). Performance Formulae may vary from
     Performance Period to Performance Period and from Participant to
     Participant and may be established on a stand-alone basis, in tandem or in
     the alternative.

          (ii) "Performance Measure" means one or more of the following selected
     by the Committee to measure Company, Affiliate, and/or business unit
     performance for a Performance Period, whether in absolute or relative terms
     (including, without limitation, terms relative to a peer group or index):
     basic, diluted, or adjusted earnings per share; sales or revenue; earnings
     before interest, taxes, and other adjustments (in total or on a per share
     basis); basic or adjusted net income; returns on equity, assets, capital,
     revenue or similar measure; economic value added; working capital; total
     shareholder return; and product development, product market share,
     research, licensing, litigation, human resources, information services,
     mergers, acquisitions, sales of assets of Affiliates or business units.
     Each such measure shall be, to the extent applicable, determined in
     accordance with generally accepted accounting principles as consistently
     applied by the Company (or such other standard applied by the Committee)
     and, if so determined by the Committee, and in the case of a Performance
     Compensation Award, to the extent permitted under Code Section 162(m),
     adjusted to omit the effects of extraordinary items, gain or loss on the
     disposal of a business segment, unusual or infrequently occurring events
     and transactions and cumulative effects of changes in accounting
     principles. Performance Measures may vary from Performance Period to
     Performance Period and from Participant to Participant, and may be
     established on a stand-alone basis, in tandem or in the alternative.

          (iii) "Performance Period" means one or more periods of time (of not
     less than one fiscal year of the Company), as the Committee may designate,
     over which the attainment of one or more Performance Measure(s) will be
     measured for the purpose of determining a Participant's rights in respect
     of an Award.

     (e) Deferral Elections. At any time prior to the date that is at least six
months before the close of a Performance Period (or shorter or longer period
that the Committee selects) with respect to an Award of either Performance Units
or Performance Compensation, the Committee may permit a Participant who is a
member of a select group of management or highly compensated employees (within
the meaning of the Code) to irrevocably elect, on a form provided by and
acceptable to the Committee, to defer the receipt of all or a percentage of the
cash or Shares that would otherwise be transferred to the Participant upon the
vesting of such Award. If the Participant makes this election, the cash or
Shares subject to the election, and any associated interest and dividends, shall
be credited to an account established pursuant to Section



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 15


9 hereof on the date such cash or Shares would otherwise have been released or
issued to the Participant pursuant to Section 10(a) or Section 10(b) above.

11. TAXES

     (a) General. As a condition to the issuance or distribution of Shares
pursuant to the Plan, the Participant (or in the case of the Participant's
death, the person who succeeds to the Participant's rights) shall make such
arrangements as the Company may require for the satisfaction of any applicable
federal, state, local or foreign withholding tax obligations that may arise in
connection with the Award and the issuance of Shares. The Company shall not be
required to issue any Shares until such obligations are satisfied. If the
Committee allows the withholding or surrender of Shares to satisfy a
Participant's tax withholding obligations, the Committee shall not allow Shares
to be withheld in an amount that exceeds the minimum statutory withholding rates
for federal and state tax purposes, including payroll taxes.

     (b) Default Rule for Employees. In the absence of any other arrangement, an
Employee shall be deemed to have directed the Company to withhold or collect
from his or her cash compensation an amount sufficient to satisfy such tax
obligations from the next payroll payment otherwise payable after the date of
the exercise of an Award.

     (c) Special Rules. In the case of a Participant other than an Employee (or
in the case of an Employee where the next payroll payment is not sufficient to
satisfy such tax obligations, with respect to any remaining tax obligations), in
the absence of any other arrangement and to the extent permitted under
Applicable Law, the Participant shall be deemed to have elected to have the
Company withhold from the Shares or cash to be issued pursuant to an Award that
number of Shares having a Fair Market Value determined as of the applicable Tax
Date (as defined below) or cash equal to the amount required to be withheld. For
purposes of this Section 11, the Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined under the Applicable Law (the "Tax Date").

     (d) Surrender of Shares. If permitted by the Committee, in its discretion,
a Participant may satisfy the minimum applicable tax withholding and employment
tax obligations associated with an Award by surrendering Shares to the Company
(including Shares that would otherwise be issued pursuant to the Award) that
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld. In the case of Shares previously acquired from
the Company that are surrendered under this Section 11, such Shares must have
been owned by the Participant for more than six months on the date of surrender
(or such longer period of time the Company may in its discretion require).

     (e) Income Taxes and Deferred Compensation. Participants are solely
responsible and liable for the satisfaction of all taxes and penalties that may
arise in connection with Awards (including any taxes arising under Section 409A
of the Code), and the Company shall not have any obligation to indemnify or
otherwise hold any Participant harmless from any or all of such taxes. The
Committee shall have the discretion to organize any deferral program, to require
deferral election forms, and to grant or to unilaterally modify any Award in a
manner that (i) conforms with the requirements of Section 409A of the Code with
respect to compensation that is deferred and that vests after December 31, 2004,
(ii) that voids any Participant election to the extent it would violate Section
409A of the Code, and (iii) for any distribution election that would violate
Section 409A of the Code, to make distributions pursuant to the Award at the
earliest to occur of a distribution event that is allowable under Section 409A
of the Code or any distribution event that is both allowable under Section 409A
of the Code and is elected by the Participant, subject to any valid second
election to defer, provided that the Committee permits second



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 16


elections to defer in accordance with Section 409A(a)(4)(C). The Committee shall
have the sole discretion to interpret the requirements of the Code, including
Section 409A, for purposes of the Plan and all Awards.

12. NON-TRANSFERABILITY OF AWARDS

     (a) General. Except as set forth in this Section 12, or as otherwise
approved by the Committee, Awards may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent or distribution. The designation of a beneficiary by a
Participant will not constitute a transfer. An Award may be exercised, during
the lifetime of the holder of an Award, only by such holder, the duly-authorized
legal representative of a Participant who is Disabled, or a transferee permitted
by this Section 12.

     (b) Limited Transferability Rights. Notwithstanding anything else in this
Section 12, the Committee may in its discretion provide in an Award Agreement
that an Award other than an ISO may be transferred, on such terms and conditions
as the Committee deems appropriate, either (i) by instrument to the
Participant's "Immediate Family" (as defined below), (ii) by instrument to an
inter vivos or testamentary trust (or other entity) in which the Award is to be
passed to the Participant's designated beneficiaries, or (iii) by gift to
charitable institutions. Any transferee of the Participant's rights shall
succeed and be subject to all of the terms of the applicable Award Agreement and
the Plan. "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, and shall include adoptive relationships.

13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER
TRANSACTIONS

     (a) Changes in Capitalization. The Committee shall equitably adjust the
number of Shares covered by each outstanding Award, and the number of Shares
that have been authorized for issuance under the Plan but as to which no Awards
have yet been granted or that have been returned to the Plan upon cancellation,
forfeiture, or expiration of an Award, as well as the price per Share covered by
each such outstanding Award, to reflect any increase or decrease in the number
of issued Shares resulting from a stock-split, reverse stock-split, stock
dividend, combination, recapitalization or reclassification of the Shares, or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company. In the event of any such transaction or
event, the Committee may provide in substitution for any or all outstanding
Options under the Plan such alternative consideration (including securities of
any surviving entity) as it may in good faith determine to be equitable under
the circumstances and may require in connection therewith the surrender of all
Options so replaced. In any case, such substitution of securities shall not
require the consent of any person who is granted Options pursuant to the Plan.
Except as expressly provided herein, or in an Award Agreement, if the Company
issues for consideration shares of stock of any class or securities convertible
into shares of stock of any class, the issuance shall not affect, and no
adjustment by reason thereof shall be required to be made with respect to the
number or price of Shares subject to any Award.

     (b) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company other than as part of a Change of Control, each Award
will terminate immediately prior to the consummation of such action, subject to
the ability of the Committee to exercise any discretion authorized in the case
of a Change in Control.


Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 17


     (c) Change in Control. In the event of a Change in Control, the Committee
may in its sole and absolute discretion and authority, without obtaining the
approval or consent of the Company's shareholders or any Participant with
respect to his or her outstanding Awards, take one or more of the following
actions:

          (i) arrange for or otherwise provide that each outstanding Award shall
     be assumed or a substantially similar award shall be substituted by a
     successor corporation or a parent or subsidiary of such successor
     corporation (the "Successor Corporation");

          (ii) accelerate the vesting of Awards so that Awards shall vest (and,
     to the extent applicable, become exercisable) as to the Shares that
     otherwise would have been unvested and provide that repurchase rights of
     the Company with respect to Shares issued upon exercise of an Award shall
     lapse as to the Shares subject to such repurchase right;

          (iii) arrange or otherwise provide for the payment of cash or other
     consideration to Participants in exchange for the satisfaction and
     cancellation of outstanding Awards;

          (iv) terminate upon the consummation of the transaction, provided that
     the Committee may in its sole discretion provide for vesting of all or some
     outstanding Awards in full as of a date immediately prior to consummation
     of the Change of Control. To the extent that an Award is not exercised
     prior to consummation of a transaction in which the Award is not being
     assumed or substituted, such Award shall terminate upon such consummation;
     or

          (v) make such other modifications, adjustments or amendments to
     outstanding Awards or this Plan as the Committee deems necessary or
     appropriate, subject however to the terms of Section 15(a) below.

     Notwithstanding the above, in the event a Participant holding an Award
assumed or substituted by the Successor Corporation in a Change in Control is
Involuntarily Terminated by the Successor Corporation in connection with, or
within 12 months following consummation of, the Change in Control, then any
assumed or substituted Award held by the terminated Participant at the time of
termination shall accelerate and become fully vested (and exercisable in full in
the case of Options and SARs), and any repurchase right applicable to any Shares
shall lapse in full, unless an Award Agreement provides for a more restrictive
acceleration or vesting schedule or more restrictive limitations on the lapse of
repurchase rights or otherwise places additional restrictions, limitations and
conditions on an Award. The acceleration of vesting and lapse of repurchase
rights provided for in the previous sentence shall occur immediately prior to
the effective date of the Participant's termination, unless an Award Agreement
provides otherwise.

     (d) Certain Distributions. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Committee may, in its discretion,
appropriately adjust the price per Share covered by each outstanding Award to
reflect the effect of such distribution.

14. TIME OF GRANTING AWARDS.

     The date of grant ("Grant Date") of an Award shall be the date on which the
Committee makes the determination granting such Award or such other date as is
determined by the Committee, provided that in the case of an ISO, the Grant Date
shall be the later of the date on which the Committee makes the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 18


determination granting such ISO or the date of commencement of the Participant's
employment relationship with the Company.

15. MODIFICATION OF AWARDS AND SUBSTITUTION OF OPTIONS.

     (a) Modification, Extension, and Renewal of Awards. Within the limitations
of the Plan, the Committee may modify an Award to accelerate the rate at which
an Option or SAR may be exercised (including without limitation permitting an
Option or SAR to be exercised in full without regard to the installment or
vesting provisions of the applicable Award Agreement or whether the Option or
SAR is at the time exercisable, to the extent it has not previously been
exercised), to accelerate the vesting of any Award, to extend or renew
outstanding Awards or to accept the cancellation of outstanding Awards to the
extent not previously exercised. However, the Committee may not cancel an
outstanding option that is underwater for the purpose of reissuing the option to
the participant at a lower exercise price or granting a replacement award of a
different type. Notwithstanding the foregoing provision, no modification of an
outstanding Award shall materially and adversely affect such Participant's
rights thereunder, unless either the Participant provides written consent or
there is an express Plan provision permitting the Committee to act unilaterally
to make the modification.

     (b) Substitution of Options. Notwithstanding any inconsistent provisions or
limits under the Plan, in the event the Company or an Affiliate acquires
(whether by purchase, merger or otherwise) all or substantially all of
outstanding capital stock or assets of another corporation or in the event of
any reorganization or other transaction qualifying under Section 424 of the
Code, the Committee may, in accordance with the provisions of that Section,
substitute Options for options under the plan of the acquired company provided
(i) the excess of the aggregate fair market value of the shares subject to an
option immediately after the substitution over the aggregate option price of
such shares is not more than the similar excess immediately before such
substitution and (ii) the new option does not give persons additional benefits,
including any extension of the exercise period.

16. TERM OF PLAN.

     The Plan shall continue in effect for a term of ten (10) years from its
effective date as determined under Section 20 below, unless the Plan is sooner
terminated under Section 17 below.

17. AMENDMENT AND TERMINATION OF THE PLAN.

     (a) Authority to Amend or Terminate. Subject to Applicable Laws, the Board
may from time to time amend, alter, suspend, discontinue, or terminate the Plan.

     (b) Effect of Amendment or Termination. No amendment, suspension, or
termination of the Plan shall materially and adversely affect Awards already
granted unless either it relates to an adjustment pursuant to Section 13 above,
or it is otherwise mutually agreed between the Participant and the Committee,
which agreement must be in writing and signed by the Participant and the
Company. Notwithstanding the foregoing, the Committee may amend the Plan to
eliminate provisions which are no longer necessary as a result of changes in tax
or securities laws or regulations, or in the interpretation thereof.

18. CONDITIONS UPON ISSUANCE OF SHARES.

     Notwithstanding any other provision of the Plan or any agreement entered
into by the Company pursuant to the Plan, the Company shall not be obligated,
and shall have no liability for failure, to issue or



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 19


deliver any Shares under the Plan unless such issuance or delivery would comply
with Applicable Law, with such compliance determined by the Company in
consultation with its legal counsel.

19. RESERVATION OF SHARES.

     The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.

20. EFFECTIVE DATE.

     This Plan shall become effective on the date on which it has received
approval by a vote of a majority of the votes cast at a duly held meeting of the
Company's shareholders (or by such other shareholder vote that the Administrator
determines to be sufficient for the issuance of Shares or stock options
according to the Company's governing documents and applicable state law).

21. CONTROLLING LAW.

     All disputes relating to or arising from the Plan shall be governed by the
internal substantive laws (and not the laws of conflicts of laws) of the State
of Delaware, to the extent not preempted by United States federal law. If any
provision of this Plan is held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions shall continue to be fully
effective.

22. LAWS AND REGULATIONS.

     (a) U.S. Securities Laws. This Plan, the grant of Awards, and the exercise
of Options and SARs under this Plan, and the obligation of the Company to sell
or deliver any of its securities (including, without limitation, Options,
Restricted Shares, Restricted Share Units, Deferred Share Units, and Shares)
under this Plan shall be subject to all Applicable Law. In the event that the
Shares are not registered under the Securities Act of 1933, as amended (the
"Act"), or any applicable state securities laws prior to the delivery of such
Shares, the Company may require, as a condition to the issuance thereof, that
the persons to whom Shares are to be issued represent and warrant in writing to
the Company that such Shares are being acquired by him or her for investment for
his or her own account and not with a view to, for resale in connection with, or
with an intent of participating directly or indirectly in, any distribution of
such Shares within the meaning of the Act, and a legend to that effect may be
placed on the certificates representing the Shares.

     (b) Other Jurisdictions. To facilitate the making of any grant of an Award
under this Plan, the Committee may provide for such special terms for Awards to
Participants who are foreign nationals or who are employed by the Company or any
Affiliate outside of the United States of America as the Committee may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom. The Company may adopt rules and procedures relating to the operation and
administration of this Plan to accommodate the specific requirements of local
laws and procedures of particular countries. Without limiting the foregoing, the
Company is specifically authorized to adopt rules and procedures regarding the
conversion of local currency, taxes, withholding procedures and handling of
stock certificates which vary with the customs and requirements of particular
countries. The Company may adopt sub-plans and establish escrow accounts and
trusts as may be appropriate or applicable to particular locations and
countries.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 20


23. NO SHAREHOLDER RIGHTS.

     Neither a Participant nor any transferee of a Participant shall have any
rights as a shareholder of the Company with respect to any Shares underlying any
Award until the date of issuance of a share certificate to a Participant or a
transferee of a Participant for such Shares in accordance with the Company's
governing instruments and Applicable Law. Prior to the issuance of Shares
pursuant to an Award, a Participant shall not have the right to vote or to
receive dividends or any other rights as a shareholder with respect to the
Shares underlying the Award, notwithstanding its exercise in the case of Options
and SARs. No adjustment will be made for a dividend or other right that is
determined based on a record date prior to the date the stock certificate is
issued, except as otherwise specifically provided for in this Plan.

24. NO EMPLOYMENT RIGHTS.

     The Plan shall not confer upon any Participant any right to continue an
employment, service or consulting relationship with the Company, nor shall it
affect in any way a Participant's right or the Company's right to terminate the
Participant's employment, service, or consulting relationship at any time, with
or without Cause.

25. TERMINATION, RESCISSION AND RECAPTURE.

     (a) Each Award under the Plan is intended to align the Participant's
long-term interest with those of the Company. If the Participant engages in
certain activities discussed below, either during employment or after employment
with the Company terminates for any reason, the Participant is acting contrary
to the long-term interests of the Company. Accordingly, except as otherwise
expressly provided in the Award Agreement, the Company may terminate any
outstanding, unexercised, unexpired, unpaid, or deferred Awards ("Termination"),
rescind any exercise, payment or delivery pursuant to the Award ("Rescission"),
or recapture any Common Stock (whether restricted or unrestricted) or proceeds
from the Participant's sale of Shares issued pursuant to the Award
("Recapture"), if the Participant does not comply with the conditions of
subsections (b) and (c) hereof (collectively, the "Conditions").

     (b) A Participant shall not, without the Company's prior written
authorization, disclose to anyone outside the Company, or use in other than the
Company's business, any proprietary or confidential information or material, as
those or other similar terms are used in any applicable patent, confidentiality,
inventions, secrecy, or other agreement between the Participant and the Company
with regard to any such proprietary or confidential information or material.

     (c) Pursuant to any agreement between the Participant and the Company with
regard to intellectual property (including but not limited to patents,
trademarks, copyrights, trade secrets, inventions, developments, improvements,
proprietary information, confidential business and personnel information), a
Participant shall promptly disclose and assign to the Company or its designee
all right, title, and interest in such intellectual property, and shall take all
reasonable steps necessary to enable the Company to secure all right, title and
interest in such intellectual property in the United States and in any foreign
country.

     (d) Upon exercise, payment, or delivery of cash or Common Stock pursuant to
an Award, the Participant shall certify on a form acceptable to the Company that
he or she is in compliance with the terms and conditions of the Plan and, if a
severance of Continuous Service has occurred for any reason, shall state the
name and address of the Participant's then-current employer or any entity for
which the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 21


Participant performs business services and the Participant's title, and shall
identify any organization or business in which the Participant owns a
greater-than-five-percent equity interest.

     (e) If the Company determines, in its sole and absolute discretion, that
(i) a Participant has violated any of the Conditions or (ii) during his or her
Continuous Service, or within one year after its termination for any reason, a
Participant (a) has rendered services to or otherwise directly or indirectly
engaged in or assisted, any organization or business that, in the judgment of
the Company in its sole and absolute discretion, is or is working to become
competitive with the Company; (b) has solicited any non-administrative employee
of the Company to terminate employment with the Company; or (c) has engaged in
activities which are materially prejudicial to or in conflict with the interests
of the Company, including any breaches of fiduciary duty or the duty of loyalty,
then the Company may, in its sole and absolute discretion, impose a Termination,
Rescission, and/or Recapture with respect to any or all of the Participant's
relevant Awards, Shares, and the proceeds thereof.

     (f) Within ten days after receiving notice from the Company of any such
activity, the Participant shall deliver to the Company the Shares acquired
pursuant to the Award, or, if Participant has sold the Shares, the gain
realized, or payment received as a result of the rescinded exercise, payment, or
delivery; provided, that if the Participant returns Shares that the Participant
purchased pursuant to the exercise of an Option (or the gains realized from the
sale of such Common Stock), the Company shall promptly refund the exercise
price, without earnings, that the Participant paid for the Shares. Any payment
by the Participant to the Company pursuant to this Section 21 shall be made
either in cash or by returning to the Company the number of Shares that the
Participant received in connection with the rescinded exercise, payment, or
delivery. It shall not be a basis for Termination, Rescission or Recapture if
after termination of a Participant's Continuous Service, the Participant
purchases, as an investment or otherwise, stock or other securities of such an
organization or business, so long as (i) such stock or other securities are
listed upon a recognized securities exchange or traded over-the-counter, and
(ii) such investment does not represent more than a five percent (5%) equity
interest in the organization or business.

     (g) Notwithstanding the foregoing provisions of this Section, the Company
has sole and absolute discretion not to require Termination, Rescission and/or
Recapture, and its determination not to require Termination, Rescission and/or
Recapture with respect to any particular act by a particular Participant or
Award shall not in any way reduce or eliminate the Company's authority to
require Termination, Rescission and/or Recapture with respect to any other act
or Participant or Award. Nothing in this Section shall be construed to impose
obligations on the Participant to refrain from engaging in lawful competition
with the Company after the termination of employment that does not violate
subsections (b) or (c) of this Section, other than any obligations that are part
of any separate agreement between the Company and the Participant or that arise
under applicable law.

     (h) All administrative and discretionary authority given to the Company
under this Section shall be exercised by the most senior human resources
executive of the Company or such other person or committee (including without
limitation the Committee) as the Committee may designate from time to time.

     (i) Notwithstanding any provision of this Section, if any provision of this
Section is determined to be unenforceable or invalid under any applicable law,
such provision will be applied to the maximum extent permitted by applicable
law, and shall automatically be deemed amended in a manner consistent with its
objectives to the extent necessary to conform to any limitations required under
applicable law. Furthermore, if any provision of this Section is illegal under
any applicable law, such provision shall be null and void to the extent
necessary to comply with applicable law.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 22


     Notwithstanding the foregoing, but subject to any contrary terms set forth
in any Award Agreement, this Section shall not be applicable: (i) to any
Participant who is not, on the Award Date, an Employee of the Company or its
Affiliates; and (ii) to any Participant from and after his or her termination of
Continuous Service after a Change in Control.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 23


                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                   ----------

                             APPENDIX A: DEFINITIONS

                                   ----------

     As used in the Plan, the following definitions shall apply:

     "AFFILIATE" means, with respect to any Person (as defined below), any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person or the power to elect directors, whether through the ownership of
voting securities, by contract or otherwise; and the terms "affiliated,"
"controlling" and "controlled" have meanings correlative to the foregoing.

     "APPLICABLE LAW" means the legal requirements relating to the
administration of options and share-based plans under applicable U.S. federal
and state laws, the Code, any applicable stock exchange or automated quotation
system rules or regulations, and the applicable laws of any other country or
jurisdiction where Awards are granted, as such laws, rules, regulations and
requirements shall be in place from time to time.

     "AWARD" means any award made pursuant to the Plan, including awards made in
the form of an Option, an SAR, a Restricted Share, a Restricted Share Unit, an
Unrestricted Share, a Deferred Share Unit, and a Performance Award, or any
combination thereof, whether alternative or cumulative, authorized by and
granted under this Plan.

     "AWARD AGREEMENT" means any written document setting forth the terms of an
Award that has been authorized by the Committee. The Committee shall determine
the form or forms of documents to be used, and may change them from time to time
for any reason.

     "BOARD" means the Board of Directors of the Company.

     "CAUSE" for termination of a Participant's Continuous Service will exist if
the Participant is terminated from employment or other service with the Company
or an Affiliate for any of the following reasons: (i) the Participant's willful
failure to substantially perform his or her duties and responsibilities to the
Company or deliberate violation of a material Company policy; (ii) the
Participant's commission of any material act or acts of fraud, embezzlement,
dishonesty, or other willful misconduct; (iii) the Participant's material
unauthorized use or disclosure of any proprietary information or trade secrets
of the Company or any other party to whom the Participant owes an obligation of
nondisclosure as a result of his or her relationship with the Company; or (iv)
Participant's willful and material breach of any of his or her obligations under
any written agreement or covenant with the Company.

     The Committee shall in its discretion determine whether or not a
Participant is being terminated for Cause. The Committee's determination shall,
unless arbitrary and capricious, be final and binding on the Participant, the
Company, and all other affected persons. The foregoing definition does not in
any way



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 24


limit the Company's ability to terminate a Participant's employment or
consulting relationship at any time, and the term "Company" will be interpreted
herein to include any Affiliate or successor thereto, if appropriate.

     "CHANGE IN CONTROL" means any of the following:

          (i) Acquisition of Controlling Interest. Any Person becomes the
     Beneficial Owner, directly or indirectly, of securities of the Company
     representing 50% or more of the combined voting power of the Company's then
     outstanding securities. In applying the preceding sentence, (i) securities
     acquired directly from the Company or its Affiliates by or for the Person
     shall not be taken into account, and (ii) an agreement to vote securities
     shall be disregarded unless its ultimate purpose is to cause what would
     otherwise be a Change in Control, as reasonably determined by the Board.

          (ii) Change in Board Control. During a consecutive 2-year period
     commencing after the date of adoption of this Plan, individuals who
     constituted the Board at the beginning of the period (or their approved
     replacements, as defined in the next sentence) cease for any reason to
     constitute a majority of the Board. A new Director shall be considered an
     "approved replacement" Director if his or her election (or nomination for
     election) was approved by a vote of at least a majority of the Directors
     then still in office who either were Directors at the beginning of the
     period or were themselves approved replacement Directors, but in either
     case excluding any Director whose initial assumption of office occurred as
     a result of an actual or threatened solicitation of proxies or consents by
     or on behalf of any Person other than the Board.

          (iii) Merger. The Company consummates a merger, or consolidation of
     the Company with any other corporation unless: (a) the voting securities of
     the Company outstanding immediately before the merger or consolidation
     would continue to represent (either by remaining outstanding or by being
     converted into voting securities of the surviving entity) at least 50% of
     the combined voting power of the voting securities of the Company or such
     surviving entity outstanding immediately after such merger or
     consolidation; and (b) no Person becomes the Beneficial Owner, directly or
     indirectly, of securities of the Company representing 50% or more of the
     combined voting power of the Company's then outstanding securities.

          (iv) Sale of Assets. The stockholders of the Company approve an
     agreement for the sale or disposition by the Company of all, or
     substantially all, of the Company's assets.

          (v) Liquidation or Dissolution. The stockholders of the Company
     approve a plan or proposal for liquidation or dissolution of the Company.

     Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.

     "CODE" means the U.S. Internal Revenue Code of 1986, as amended.

     "COMMITTEE" means one or more committees or subcommittees of the Board
appointed by the Board to administer the Plan in accordance with Section 4
above. With respect to any decision involving an



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 25


Award intended to satisfy the requirements of Section 162(m) of the Code, the
Committee shall consist of two or more Directors of the Company who are "outside
directors" within the meaning of Section 162(m) of the Code. With respect to any
decision relating to a Reporting Person, the Committee shall consist of two or
more Directors who are disinterested within the meaning of Rule 16b-3.

     "COMPANY" means Commerce Energy Group, Inc., a Delaware corporation;
provided, however, that in the event the Company reincorporates to another
jurisdiction, all references to the term "Company" shall refer to the Company in
such new jurisdiction.

     "CONSULTANT" means any person, including an advisor, who is engaged by the
Company or any Affiliate to render services and is compensated for such
services.

     "CONTINUOUS SERVICE" means the absence of any interruption or termination
of service as an Employee, Director, or Consultant. Continuous Service shall not
be considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Committee, provided that such
leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; (iv)
changes in status from Director to advisory director or emeritus status; or (v)
in the case of transfers between locations of the Company or between the
Company, its Affiliates or their respective successors. Changes in status
between service as an Employee, Director, and a Consultant will not constitute
an interruption of Continuous Service.

     "DEFERRED SHARE UNITS" mean Awards pursuant to Section 9 of the Plan.

     "DIRECTOR" means a member of the Board, or a member of the board of
directors of an Affiliate.

     "DISABLED" means a condition under which a Participant --

          (a) is unable to engage in any substantial gainful activity by reason
     of any medically determinable physical or mental impairment which can be
     expected to result in death or can be expected to last for a continuous
     period of not less than 12 months, or

          (b) is, by reason of any medically determinable physical or mental
     impairment which can be expected to result in death or can be expected to
     last for a continuous period of not less than 12 months, received income
     replacement benefits for a period of not less than 3 months under an
     accident or health plan covering employees of the Company.

     "ELIGIBLE PERSON" means any Consultant, Director or Employee and includes
non-Employees to whom an offer of employment has been extended.

     "EMPLOYEE" means any person whom the Company or any Affiliate classifies as
an employee (including an officer) for employment tax purposes, whether or not
that classification is correct. The payment by the Company of a director's fee
to a Director shall not be sufficient to constitute "employment" of such
Director by the Company.

     "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

     "FAIR MARKET VALUE" means, as of any date (the "Determination Date") means:
(i) the closing price of a Share on the New York Stock Exchange or the American
Stock Exchange (collectively, the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 26


"Exchange"), on the Determination Date, or, if shares were not traded on the
Determination Date, then on the nearest preceding trading day during which a
sale occurred; or (ii) if such stock is not traded on the Exchange but is quoted
on NASDAQ or a successor quotation system, (A) the last sales price (if the
stock is then listed as a National Market Issue under The Nasdaq National Market
System) or (B) the mean between the closing representative bid and asked prices
(in all other cases) for the stock on the Determination Date as reported by
NASDAQ or such successor quotation system; or (iii) if such stock is not traded
on the Exchange or quoted on NASDAQ but is otherwise traded in the
over-the-counter, the mean between the representative bid and asked prices on
the Determination Date; or (iv) if subsections (i)-(iii) do not apply, the fair
market value established in good faith by the Board.

     "GRANT DATE" has the meaning set forth in Section 14 of the Plan.

     "INCENTIVE SHARE OPTION OR ISO" hereinafter means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable Award Agreement.

     "INVOLUNTARY TERMINATION" means termination of a Participant's Continuous
Service under the following circumstances occurring on or after a Change in
Control: (i) termination without Cause by the Company or an Affiliate or
successor thereto, as appropriate; or (ii) voluntary termination by the
Participant within 60 days following (A) a material reduction in the
Participant's job responsibilities, provided that neither a mere change in title
alone nor reassignment to a substantially similar position shall constitute a
material reduction in job responsibilities; (B) an involuntary relocation of the
Participant's work site to a facility or location more than 50 miles from the
Participant's principal work site at the time of the Change in Control; or (C) a
material reduction in Participant's total compensation other than as part of an
reduction by the same percentage amount in the compensation of all other
similarly-situated Employees, Directors or Consultants.

     "NON-ISO" means an Option not intended to qualify as an ISO, as designated
in the applicable Award Agreement.

     "OPTION" means any stock option granted pursuant to Section 6 of the Plan.

     "PARTICIPANT" means any holder of one or more Awards, or the Shares
issuable or issued upon exercise of such Awards, under the Plan.

     "PERFORMANCE AWARDS" mean Performance Units and Performance Compensation
Awards granted pursuant to Section 10.

     "PERFORMANCE COMPENSATION AWARDS" mean Awards granted pursuant to Section
10(b) of the Plan.

     "PERFORMANCE UNIT" means Awards granted pursuant to Section 10(a) of the
Plan which may be paid in cash, in Shares, or such combination of cash and
Shares as the Committee in its sole discretion shall determine.

     "PERSON" means any natural person, association, trust, business trust,
cooperative, corporation, general partnership, joint venture, joint-stock
company, limited partnership, limited liability company, real estate investment
trust, regulatory body, governmental agency or instrumentality, unincorporated
organization or organizational entity.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 27


     "PLAN" means this Commerce Energy Group, Inc. 2006 Stock Incentive Plan.

     "REPORTING PERSON" means an officer, Director, or greater than ten percent
shareholder of the Company within the meaning of Rule 16a-2 under the Exchange
Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange
Act.

     "RESTRICTED SHARES" mean Shares subject to restrictions imposed pursuant to
Section 8 of the Plan.

     "RESTRICTED SHARE UNITS" mean Awards pursuant to Section 8 of the Plan.

     "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act, as
amended from time to time, or any successor provision.

     "SAR" OR "SHARE APPRECIATION RIGHT" means Awards granted pursuant to
Section 7 of the Plan.

     "SHARE" means a share of common stock of the Company, par value $0.001, as
adjusted in accordance with Section 13 of the Plan.

     "TEN PERCENT HOLDER" means a person who owns stock representing more than
ten percent (10%) of the combined voting power of all classes of stock of the
Company or any Affiliate.

     "UNRESTRICTED SHARES" mean Shares awarded pursuant to Section 8 of the
Plan.

                         FEDERAL INCOME TAX CONSEQUENCES

          The following is a general discussion of certain U.S. federal income
tax consequences relating to awards granted under the 2006 Stock Incentive Plan.
This discussion does not address all aspects of U.S. federal income taxation,
does not discuss state, local and foreign tax issues and does not discuss
considerations applicable to a holder who is, with respect to the United States,
a non-resident alien individual. This summary of federal income tax consequences
does not purport to be complete and is based upon interpretations of the
existing laws, regulations and rulings which could be altered materially with
enactment of any new tax legislation.

          Under the United States Internal Revenue Code (the "Code"), the
Company will generally be entitled to a deduction for federal income tax
purposes at the same time and in the same amount as the ordinary income that
participants recognize pursuant to awards (subject to the participant's overall
compensation being reasonable, and to the discussion below with respect to Code
section 162(m)). For participants, the expected U.S. tax consequences of awards
are as follows:

          ISOs. ISOs may only be granted to employees and must be exercised
while employed or within 3 months of the termination of employment (except in
cases of death or disability). A participant will not recognize income upon the
grant of an ISO. There are generally no tax consequences to the participant upon
exercise of an ISO (except the amount by which the fair market value of the
shares at the time of exercise exceeds the option exercise price is a tax
preference item possibly giving rise to an alternative minimum tax). If the
shares are not disposed of within two years from the date the ISO was granted or
within one year after the ISO was exercised, any gain realized upon the
subsequent disposition of the shares will be characterized as long-term capital
gain and any loss will be characterized as long-term capital loss. If either of
these holding period requirements are not met, then a "disqualifying
disposition"



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 28


occurs and (a) the participant recognizes ordinary income gain in the amount by
which the fair market value of the shares at the time of exercise exceeded the
exercise price for the ISO and (b) any remaining amount realized on disposition
(except for certain "wash" sales, gifts or sales to related persons) will be
characterized as capital gain or loss.

          If a participant pays the option exercise price of an ISO by the
surrender of unrestricted shares of Common Stock that he or she already owns, he
or she will not recognize gain or loss on the shares surrendered. A number of
shares received equal to the number of shares surrendered will have a basis
equal to the basis of the shares surrendered, and the participant's holding
period of such shares received will include the holding period of the shares
surrendered. To the extent that the value of the shares received exceeds the
value of the shares surrendered, those shares received that represent such
excess in value will have a basis equal to zero and a holding period that will
commence on the day they are acquired. However, if a participant surrenders
shares that were acquired through the previous exercise of an ISO before the end
of the requisite holding period, the participant may recognize ordinary income
on the surrender of those shares.

          Options otherwise qualifying as ISOs will be treated as non-ISOs to
the extent that the fair market value of the shares with respect to which
incentive stock options granted after 1986 are exercisable for the first time by
a participant during any calendar year (under all of the Company's plans and
those of any of its subsidiaries) exceeds $100,000. This rule is applied by
taking the options into account in the order in which they are granted.

          Non-ISOs. A participant will not recognize income at the time that a
non-ISO is granted. At the time a non-ISO is exercised, the participant will
recognize ordinary income in an amount equal to the excess of (a) the fair
market value of the shares issued to the participant on the exercise date over
(b) the exercise price paid for the shares. At the time of sale of shares
acquired pursuant to the exercise of a non-ISO, the appreciation (or
depreciation) in value of the shares after the date of exercise will be treated
either as short-term or long-term capital gain (or loss) depending on how long
the shares have been held.

          If a participant pays the option price of a non-ISO in whole or in
part by the surrender of Common Stock that he or she already owns, he or she
will not recognize gain or loss on the shares surrendered. A number of shares
received equal to the number of shares surrendered will have a tax basis equal
to the basis of the shares surrendered, and the participant's holding period of
such shares received will include the holding period of the shares surrendered.
To the extent that the value of the shares received upon exercise exceeds the
value of the shares surrendered, the excess (reduced by the amount of any cash
paid by the participant) will be ordinary income. Furthermore, the shares
received that represent such excess in value will have a basis equal to their
fair market value and a holding period that will commence on the day after they
are acquired. However, if the shares surrendered are considered substantially
non-vested property within the meaning of Section 83 of the Code, a Section
83(b) Election (as defined below) with respect to the shares has not been made,
and certain shares received upon exercise are considered substantially
non-vested property, the participant will generally recognize ordinary income in
the year during which the restrictions terminate on the shares received.

          Share Appreciation Rights. A participant to whom a SAR is granted will
not recognize income at the time of grant of the SAR. Upon exercise of a SAR,
the participant must recognize taxable compensation income in an amount equal to
the amount or cash received and the fair market value of any shares that the
participant receives.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 29


          Restricted Shares, Restricted Share Units, Deferred Share Units,
Performance Awards, and Unrestricted Shares. In general, a participant will not
recognize income at the time of grant of restricted shares, restricted share
units, deferred share units, or performance awards, unless the participant
elects with respect to restricted shares or restricted share units to accelerate
income taxation to the date of the award pursuant to an election under Section
83(b) of the Code (a "Section 83(b) Election"). In this event, a participant
would recognize ordinary income equal to the excess of the market value of the
restricted shares over any amount the participant pays for them (in which case
subsequent gain or loss would be capital in nature). In the absence of an
election to accelerate income taxation to the date of an award, a participant
must recognize taxable compensation income equal to the value of any cash or
unrestricted shares that the participant receives. The same tax consequences
apply to performance awards and awards of unrestricted shares.

          Special Tax Provisions. Under certain circumstances, the accelerated
vesting, cash-out or accelerated lapse of restrictions on awards in connection
with a change in control of the Company might be deemed an "excess parachute
payment" for purposes of the golden parachute tax provisions of Code section
280G, and the participant may be subject to a 20% excise tax and the Company may
be denied a tax deduction. Furthermore, the Company may not be able to deduct
the aggregate compensation in excess of $1,000,000 attributable to awards that
are not performance-based" within the meaning of Code section 162(m) in certain
circumstances. The 2005 Plan is designed to permit certain awards that qualify
as performance-based compensation for this purpose.

          Special Rules Applicable to Insiders. In limited circumstances where
the sale of Common Stock received as a result of a grant or award could subject
those participants who are directors or officers of the Company subject to
Section 16(b) of the Exchange Act (collectively, "Insiders") to a lawsuit under
Section 16(b) of the Exchange Act, the tax consequences to the Insider may
differ from the tax consequences described above. In these circumstances, unless
Section 83(b) Election has been made, the principal difference (in cases where
the Insider would otherwise be currently taxed upon the participant's receipt of
the stock) usually will be to postpone valuation and taxation of the stock
received so long as the sale of the stock received could subject the Insider to
suit under Section 16(b) of the Exchange Act, but no longer than six months.

                 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

          The following documents previously filed by the Company with the
Securities and Exchange Commission (the "Commission") are incorporated herein by
reference:

               -    The Company's Annual Report on Form 10-K for the year ended
                    July 31, 2005 filed with the Commission on October 31, 2005;

               -    The Company's Quarterly Report on Form 10-Q for the quarter
                    ended October 31, 2005 filed with the Commission on December
                    15, 2005;

               -    The Company's Quarterly Report on Form 10-Q for the quarter
                    ended January 31, 2006 filed with the Commission on March
                    16, 2006;

               -    The Company's amended Quarterly Report on Form 10-Q/A
                    (Amendment No. 1) for the quarter ended October 31, 2004
                    filed with the Commission on October 31, 2005;

               -    The Company's amended Quarterly Report on Form 10-Q/A
                    (Amendment No. 3) for the quarter ended January 31, 2005
                    filed with the Commission on October 31, 2005;

               -    The Company's amended Quarterly Report on Form 10-Q/A
                    (Amendment No. 2) for the quarter ended April 30, 2005 filed
                    with the Commission on October 31, 2005;

               -    The Registrant's Current Reports on Form 8-K, as filed with
                    the Commission on August 2, 2005, August 5, 2005, August 30,
                    2005, September 30, 2005, October 13, 2005,



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 30


                    October 31, 2005, November 14, 2005, November 17, 2005,
                    November 23, 2005, December 2, 2005, December 6, 2005,
                    December 8, 2005, December 15, 2005 (but specifically not
                    incorporating by reference herein the Form 8-K filed on
                    December 15, 2005 announcing the Company's earnings for the
                    quarter ended October 31, 2005), February 1, 2006, March 2,
                    2006 and April 18, 2006;

               -    The Company's amended Current Report on Form 8-K/A
                    (Amendment No. 2) filed with the Commission on August 2,
                    2005; and

               -    the description of the Common Stock, par value $.001 per
                    share, of the Company and the common stock purchase rights,
                    which is incorporated by reference into the Company's
                    registration statement on Form 8-A, filed with the
                    Commission on July 6, 2004, pursuant to the Securities
                    Exchange Act of 1934, as amended (the "Exchange Act") and
                    any amendment or report filed for the purpose of updating
                    such description.

          In addition, all documents filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment which indicates that all securities
offered have been sold or which de-registers all securities then remaining
unsold, shall be deemed to be incorporated by reference into this Memorandum and
to be a part hereof from the date of filing of such documents with the
Securities and Exchange Commission.

          Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Memorandum to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Memorandum.

                      USE OF PROCEEDS, TAX WITHHOLDING AND
                                    NO LIENS

          Any proceeds that the Company receives from the sale of Common Stock
pursuant to Awards will be used for general corporate purposes. Employment and
withholding taxes will apply to the income arising from Awards. Participants
will not be subject to any additional charges (other than payment of the
exercise price for Options) in connection with their Awards. Nor does the Plan
allow for any liens on any Awards, funds, or Common Stock that Participants hold
or may receive pursuant to the Plan.

                             ADDITIONAL INFORMATION

          Additional information about the Plan and its administrators may be
obtained from, and copies of the following documents or reports will be
furnished without charge upon written or oral request to the Secretary, Commerce
Energy Group, Inc., 600 Anton Boulevard, Suite 2000, Costa Mesa, California
92626; telephone number (714) 259-2500:

          -    Documents or reports incorporated by reference in this Memorandum
               (excluding exhibits to such documents or reports unless such
               exhibits are specifically incorporated by reference into such
               documents or reports);

          -    The Company's annual report to shareholders for the latest fiscal
               year; and



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 31


          -    All reports, proxy statements and other communications
               distributed to the shareholders of the Company.

          All participants shall receive, if they do not otherwise receive such
materials, copies of all reports, proxy statements and other communications
distributed to the Company's security holders generally. Such materials shall be
delivered not later than the time at which they are sent to the Company's
security holders.


                                                                       EXHIBIT C

                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

                FORM OF EXERCISE OF STOCK OPTION AWARD AGREEMENT

                                   ----------

           Commerce Energy Group, Inc.
Attention: 2006 Stock Incentive Plan Committee
           600 Anton Boulevard
           Costa Mesa, California 92626

Dear Sir or Madam:

     The undersigned elects to exercise his/her Incentive Stock Option to
purchase _____ shares of Common Stock of Commerce Energy Group, Inc. (the
"Company") under and pursuant to a Stock Option Agreement dated as of _________.

     1. [ ] Delivered herewith is a certified or bank cashier's or teller's
check and/or shares of Common Stock held by the undersigned for at least six
months*, valued at the closing sale price of the stock on the business day prior
to the date of exercise, as follows:

          $____________ in cash or check
          $____________ in the form of ____ shares of Common Stock,
                           valued at $___________ per share

          $____________ TOTAL

     2. [ ] Delivered herewith are irrevocable instructions to a broker
approved by the Company to deliver promptly to the Company the amount of sale
or loan proceeds to pay the exercise price.**

     If method 1 is chosen, the name or names to be on the stock certificate or
certificates and the address and Social Security Number of such person(s) is as
follows:

Name: __________________________________________________________________________

Address: _______________________________________________________________________

Social Security Number _________________________________________________________

                                        Very truly yours,


- -------------------------------------   ----------------------------------------
Date                                    Optionee

*    The Committee may waive the six months' requirement in its discretion.

**   The Committee must approve this method in writing before your election



                                                                       EXHIBIT D

                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

                           DESIGNATION OF BENEFICIARY

                                   ----------

          In connection with Award Agreements between Commerce Energy Group,
Inc. (the "Company") and _______________, an individual residing at
_________________ (the "Recipient"), the Recipient hereby designates the person
specified below as the beneficiary of the Recipient's interest in Awards as
defined in the Company's 2006 Stock Incentive Plan (the "Plan"). This
designation shall remain in effect until revoked in writing by the Recipient.

               Name of Beneficiary: ______________________________________

               Address:             ______________________________________

                                    ______________________________________

                                    ______________________________________

               Social Security No.: ______________________________________

     This beneficiary designation relates to any and all of Recipient's rights
under the following Award or Awards:

          [ ] any Award that Recipient has received under the Plan.

          [ ]  the _________________ Award that Recipient received pursuant to
               an award agreement dated _________ __, ____ between Recipient and
               the Company.

          The Recipient understands that this designation operates to entitle
the above-named beneficiary to the rights conferred by an Award from the date
this form is delivered to the Company until such date as this designation is
revoked in writing by the Recipient, including by delivery to the Company of a
written designation of beneficiary executed by the Recipient on a later date.

                                        Date:
                                              ----------------------------------


                                        By:
                                            ------------------------------------
                                            [Recipient Name]
Sworn to before me this
____ day of ____________, 200_


- -------------------------------------
Notary Public
County of
          ---------------------------
State of
         ----------------------------



                                    EXHIBIT B

                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                   ----------

                        RESTRICTED SHARE AWARD AGREEMENT

                              (FOR U.S. EMPLOYEES)

                                   ----------

                                   AWARD NO. 3
                                  DATE 03/27/07

     In consideration of, and as a reward for, your past services rendered to
the Company and to provide you with an incentive for on-going superior
performance (which has a value exceeding the par value of the Restricted Shares
awarded pursuant to this Agreement), you are hereby awarded Restricted Shares
subject to the terms and conditions set forth in this Restricted Share Award
Agreement ("Award Agreement" or "Award"), and in the Commerce Energy Group, Inc.
2006 Stock Incentive Plan (the "Plan"), which is attached hereto as Exhibit A. A
summary of the Plan appears in its Prospectus, which is attached as Exhibit B.
You should carefully review these documents, and consult with your personal
financial advisor, in order to fully understand the implications of this Award,
including your tax alternatives and their consequences.

     By executing this Award Agreement, you agree to be bound by all of the
Plan's terms and conditions as if they had been set out verbatim in this Award
Agreement. In addition, you recognize and agree that all determinations,
interpretations, or other actions respecting the Plan and this Award Agreement
will be made by the Board of Directors (the "Board") of Commerce Energy Group,
Inc. (the "Company") or and Committee appointed by the Board to administer the
Plan, and shall (in the absence of manifest bad faith or fraud) be final,
conclusive and binding upon all parties, including you, your heirs and
representatives. Capitalized terms are defined in the Plan or in this Award
Agreement.

1. SPECIFIC TERMS. Your Restricted Shares have the following terms:

                     
Name of Participant     ERIK A. LOPEZ, SR.

Number of Shares        60,000
Subject to Award

Purchase Price per      Not applicable.
Share (if applicable)

Award Date              March 27, 2007

Vesting                 20,000 Restricted Shares to vest on each of the next
                        three anniversaries of the Participant's first date of
                        employment, March 26, 2008, March 26, 2009 and March 26,
                        2010; subject to acceleration as provided in the Plan,
                        in Section 2 below, and in your employment agreement
                        with the





Commerce Energy Group, Inc.
Restricted Shares Award Agreement
Page 2


                     
                        Company dated March 26, 2007 and to your Continuous
                        Service not ending before the vesting date.

Lifetime Transfer       [X] Allowed.   [ ] Not allowed.

Deferral Elections      [X] Allowed in accordance with Section 8(g) of the Plan.   [ ] Not allowed.



2. ACCELERATED VESTING; CHANGE IN CORPORATE CONTROL. To the extent you have not
previously vested in your rights with respect to this Award, your Award will
become -

     [ ]  ___% vested if your Continuous Service ends due to your death or
          "disability" within the meaning of Section 409A of the Code;

     [ ]  ___% vested if your Continuous Service ends due to your retirement
          at or after you have attained the age of ___ and completed at least
          ___ full years of Continuous Service;

     [ ]  according to the following schedule if your Continuous Service ends
          due to an Involuntary Termination that occurs within the one year
          period following a Change in Control:



Date on which Your Involuntary Termination        Portion of Your Award
  Occurs (by reference to Date of Award)     As to which Vesting Accelerates
- ------------------------------------------   -------------------------------
                                          
Before 1st Anniversary                                       0%
Between 1st and 2nd Anniversary                            ___%
After 2nd Anniversary                                      ___%


3. INVESTMENT PURPOSES. You acknowledge that you are acquiring your Restricted
Shares for investment purposes only and without any present intention of selling
or distributing them.

4. ISSUANCE OF RESTRICTED SHARES. Until all vesting restrictions lapse, any
certificates that you receive for Restricted Shares will include a legend
stating that they are subject to the restrictions set forth in the Plan and this
Award Agreement. Certificates shall not be delivered to you unless you have made
arrangements satisfactory to the Committee to satisfy tax-withholding
obligations. The certificates evidencing such Restricted Shares that will be
issued will bear the following legend that shall remain in place and effective
until all other vesting restrictions lapse and new certificates are issued:

     "The sale or other transfer of the Stock represented by this certificate,
whether voluntary, involuntary, or by operation of law, is subject to certain
restrictions on transfer set forth in the Commerce Energy Group, Inc. 2006 Stock
Incentive Plan, and in any rules and administrative procedures adopted pursuant
to such Plan and in a related Award Agreement. A copy of the Plan, such rules
and procedures and such Award Agreement may be obtained from the Secretary of
Commerce Energy Group, Inc."



Commerce Energy Group, Inc.
Restricted Shares Award Agreement
Page 3


5. UNVESTED RESTRICTED SHARES. The Company will hold such Restricted Shares in
escrow until vesting occurs. You will be reflected as the owner of record on the
Company's books and records of any Shares issued pursuant to this Award
Agreement. The Company will hold the stock certificates for safekeeping until
such Shares have become vested and non-forfeitable. You must deliver to the
Company, as soon as practicable after the date any Shares are issued, a stock
power, endorsed in blank, with respect to any such Shares. If you forfeit any
Shares, the stock power will be used to return the certificates for the
forfeited Shares to the transfer agent for cancellation. As the owner of record
of any Restricted Shares you qualify to receive pursuant to this Award
Agreement, you will be entitled to all rights of a stockholder of the Company,
including the right to vote Shares; subject, however, to the provisions of
Section 6 hereof with respect to any cash or stock dividends that are paid
between the date of this Award and your receipt of Shares pursuant to a vesting
event, subject in each case to the treatment of the Award upon termination of
employment before the particular record date for determining stockholders of
record entitled to the payment of the dividend or distribution. To the extent
such dividend is paid in stock, such stock shall be subject to the same
restrictions contained in Section 1.

6. DIVIDENDS. When Shares are delivered to you or your duly-authorized
transferee pursuant to the vesting of the Shares, you or your duly-authorized
transferee shall also be entitled to receive, with respect to each Share issued,
an amount equal to any cash dividends (plus simple interest at a rate of five
percent per annum, or such other reasonable rate as the Committee may determine)
and a number of Shares equal to any stock dividends, which were declared and
paid to the holders of Shares between the Grant Date and the date such Share is
issued. To the extent that your Continuous Service ends before vesting of the
Shares, you will forfeit all dividends (whether paid in cash or in stock)
attributable to all such Shares.

7. LONG-TERM CONSIDERATION FOR AWARD. The Participant recognizes and agrees that
the Company's key consideration in granting this Award is securing the long-term
commitment of the Participant to serve an officer of the Company who will
advance and promote the business interests and objectives of the Company and/or
its Affiliates (the "Company Group"). Accordingly, the Participant agrees that
this Award shall be subject to the terms and conditions set forth in Section 25
of the Plan (relating to the termination, rescission and recapture if you
violate certain commitments made therein to the Company Group), as well as to
the following terms and conditions as material and indivisible consideration for
this Award:

          Fiduciary Duty. During his or her employment with the Company Group
the Participant shall devote his or her full energies, abilities, attention and
business time to the performance of his or her job responsibilities and shall
not engage in any activity which conflicts or interferes with, or in any way
compromises, his or her performance of such responsibilities.

          Confidential Information. The Participant recognizes that by virtue of
his or her employment with the Company Group, he or she will be granted
otherwise prohibited access to confidential information and proprietary data
which are not known, and not readily accessible to the competitors of the
Company Group. This information (the "Confidential Information") includes, but
is not limited to, current and prospective customers; the identity of key
contacts at such customers; customers' particularized preferences and needs;
marketing strategies and plans; financial data; personnel data; compensation
data; proprietary procedures and processes; and other unique



Commerce Energy Group, Inc.
Restricted Shares Award Agreement
Page 4


and specialized practices, programs and plans of the Company Group and their
respective customers and prospective customers. The Participant recognizes that
this Confidential Information constitutes a valuable property of the Company
Group, developed over a significant period of time and at substantial expense.
Accordingly, the Participant agrees that he or she shall not, at any time during
or after his or her employment with the Company Group, divulge such Confidential
Information or make use of it for his or her own purposes or the purposes of any
person or entity other than the Company Group.

          Non-Solicitation of Customers. The Participant recognizes that by
virtue of his or her employment with the Company Group he or she will be
introduced to and involved in the solicitation and servicing of existing
customers of the Company Group and new customers obtained by the Company Group
during his or her employment. The Participant understands and agrees that all
efforts expended in soliciting and servicing such customers shall be for the
permanent benefit of the Company Group. The Participant further agrees that
during his or her employment with the Company Group the Participant will not
engage in any conduct which could in any way jeopardize or disturb any of the
customer relationships of the Company Group. The Participant also recognizes the
legitimate interest of the Company Group in protecting, for a reasonable period
of time after his or her employment with the Company Group, the customers of the
Company Group. Accordingly, the Participant agrees that, for a period beginning
on the date hereof and ending one (1) year after termination of Participant's
employment with the Company Group, regardless of the reason for such
termination, the Participant shall not, directly or indirectly, without the
prior written consent of the Chief Executive Officer of the Company, market,
offer, sell or otherwise furnish any products or services similar to, or
otherwise competitive with, those offered by the Company Group to any customer
of the Company Group.

          Non-Solicitation of Employees. The Participant recognizes the
substantial expenditure of time and effort which the Company Group devotes to
the recruitment, hiring, orientation, training and retention of its employees.
Accordingly, the Participant agrees that, for a period beginning on the date
hereof and ending two (2) years after termination of Participant's employment
with the Company Group, regardless of the reason for such termination, the
Participant shall not, directly or indirectly, for himself or herself or on
behalf of any other person or entity, solicit, offer employment to, hire or
otherwise retain the services of any employee of the Company Group.

          Survival of Commitments; Potential Recapture of Award and Proceeds.
The Participant acknowledges and agrees that the terms and conditions of this
Section regarding confidentiality and non-solicitation shall survive both (i)
the termination of Participant's employment with the Company Group for any
reason, and (ii) the termination of the Plan, for any reason. The Participant
acknowledges and agrees that the grant of Restricted Shares in this Award
Agreement is just and adequate consideration for the survival of the
restrictions set forth herein, and that the Company Group may pursue any or all
of the following remedies if the Participant either violates the terms of this
Section or succeeds for any reason in invalidating any part of it (it being
understood that the invalidity of any term hereof would result in a failure of
consideration for the Award):

          (i)  declaration that the Award is null and void and of no further
               force or effect;



Commerce Energy Group, Inc.
Restricted Shares Award Agreement
Page 5


          (ii) recapture of any cash paid or Shares issued to the Participant,
               or any designee or beneficiary of the Participant, pursuant to
               the Award;

          (iii) recapture of the proceeds, plus reasonable interest, with
               respect to any Shares that are both issued pursuant to this Award
               and sold or otherwise disposed of by the Participant, or any
               designee or beneficiary of the Participant.

The remedies provided above are not intended to be exclusive, and the Company
Group may seek such other remedies as are provided by law, including equitable
relief.

          (f) Acknowledgement. The Participant acknowledges and agrees that his
or her adherence to the foregoing requirements will not prevent him or her from
engaging in his or her chosen occupation and earning a satisfactory livelihood
following the termination of his or her employment with the Company Group.

8. SECTION 83(B) ELECTION NOTICE. If you make an election under Section 83(b) of
the Internal Revenue Code of 1986, as amended, with respect to the Shares
underlying your Restricted Shares (a "Section 83(b) election"), you agree to
provide a copy of such election to the Company within 10 days after filing that
election with the Internal Revenue Service. Exhibit C contains a suggested form
of Section 83(b) election.

9. DESIGNATION OF BENEFICIARY. Notwithstanding anything to the contrary
contained herein or in the Plan, following the execution of this Award
Agreement, you may expressly designate a beneficiary (the "Beneficiary") to your
interest, if any, in the Restricted Shares awarded hereby. You shall designate
the Beneficiary by completing and executing a designation of beneficiary
agreement substantially in the form attached hereto as Exhibit D (the
"Designation of Beneficiary") and delivering an executed copy of the Designation
of Beneficiary to the Company.

10. RESTRICTIONS ON TRANSFER. This Award Agreement may not be sold, pledged, or
otherwise transferred without the prior written consent of the Committee.
Notwithstanding the foregoing, the Participant may transfer this Award (i) by
instrument to an inter vivos or testamentary trust (or other entity) in which
each beneficiary is a permissible gift recipient, as such is set forth in
subsection (ii) of this Section, or (ii) by gift to charitable institutions or
by gift or transfer for consideration to any of the following relatives of the
Participant (or to an inter vivos trust, testamentary trust or other entity
primarily for the benefit of the following relatives of the Participant): any
child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former
spouse, domestic partner, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include
adoptive relationships. Any transferee of the Participant's rights shall succeed
and be subject to all of the terms of this Award Agreement and the Plan.

11. INCOME TAXES AND DEFERRED COMPENSATION. The Participant is solely
responsible and liable for the satisfaction of all taxes and penalties that may
arise in connection with this Award (including any taxes arising under Section
409A of the Code), and the Company shall not have any obligation to indemnify or
otherwise hold any Participant harmless from any or all of such taxes. The
Committee shall have the discretion to unilaterally modify this Award in a
manner that (i) conforms with the requirements of Section 409A of the Code, (ii)
that voids any election of the Participant to the extent it would violate
Section 409A of the Code, and (iii) for any distribution



Commerce Energy Group, Inc.
Restricted Shares Award Agreement
Page 6


election that would violate Section 409A of the Code, to make distributions
pursuant to the Award at the earliest to occur of a distribution event that is
allowable under Section 409A of the Code or any distribution event that is both
allowable under Section 409A of the Code and is elected by the Participant,
subject to any valid second election to defer, provided that the Committee
permits second elections to defer in accordance with Section 409A(a)(4)(C). The
Committee shall have the sole discretion to interpret the requirements of the
Code, including Section 409A, for purposes of the Plan and this Award Agreement.

12. NOTICES. Any notice or communication required or permitted by any provision
of this Award Agreement to be given to you shall be in writing and shall be
delivered personally or sent by certified mail, return receipt requested,
addressed to you at the last address that the Company had for you on its
records. Each party may, from time to time, by notice to the other party hereto,
specify a new address for delivery of notices relating to this Award Agreement.
Any such notice shall be deemed to be given as of the date such notice is
personally delivered or properly mailed.

13. BINDING EFFECT. Except as otherwise provided in this Award Agreement or in
the Plan, every covenant, term, and provision of this Award Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legatees, legal representatives, successors, transferees, and assigns.

14. MODIFICATIONS. This Award Agreement may be modified or amended at any time,
in accordance with Section 15 of the Plan and provided that you must consent in
writing to any modification that adversely alters or impairs any rights or
obligations under this Award Agreement.

15. HEADINGS. Section and other headings contained in this Award Agreement are
for reference purposes only and are not intended to describe, interpret, define
or limit the scope or intent of this Award Agreement or any provision hereof.

16. SEVERABILITY. Every provision of this Award Agreement and of the Plan is
intended to be severable. If any term hereof is illegal or invalid for any
reason, such illegality or invalidity shall not affect the validity or legality
of the remaining terms of this Award Agreement.

17. COUNTERPARTS. This Award Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.

18. PLAN GOVERNS. By signing this Award Agreement, you acknowledge that you have
received a copy of the Plan and that your Award Agreement is subject to all the
provisions contained in the Plan, the provisions of which are made a part of
this Award Agreement and your Award is subject to all interpretations,
amendments, rules and regulations which from time to time may be promulgated and
adopted pursuant to the Plan. In the event of a conflict between the provisions
of this Award Agreement and those of the Plan, the provisions of the Plan shall
control.

19. GOVERNING LAW. The laws of the State of Delaware shall govern the validity
of this Award Agreement, the construction of its terms, and the interpretation
of the rights and duties of the parties hereto.



Commerce Energy Group, Inc.
Restricted Shares Award Agreement
Page 7


20. NOT A CONTRACT OF EMPLOYMENT. By executing this Award Agreement you
acknowledge and agree that (i) any person who is terminated before full vesting
of an award, such as the one granted to you by this Award, could claim that he
or she was terminated to preclude vesting; (ii) you promise never to make such a
claim; (iii) nothing in this Award Agreement or the Plan confers on you any
right to continue an employment, service or consulting relationship with the
Company Group, nor shall it affect in any way your right or the right of the
Company Group, as applicable to terminate your employment, service, or
consulting relationship at any time, with or without Cause; and (iv) the Company
would not have granted this Award to you but for these acknowledgements and
agreements.

21. EMPLOYMENT AGREEMENT PROVISION By executing this Award, you acknowledge and
agree that your rights upon a termination of employment before full vesting of
this Award will be determined under Section 5 of your employment agreement with
the Company and Erik A. Lopez, Sr., dated as of March 26, 2007.

          BY YOUR SIGNATURE BELOW, along with the signature of the Company's
representative, you and the Company agree that the Restricted Shares are awarded
under and governed by the terms and conditions of this Award Agreement and the
Plan.

                                        COMMERCE ENERGY GROUP, INC.


                                        By:
                                            ------------------------------------
                                        Name: Steven S. Boss
                                        Title: Chief Executive Officer


                                        PARTICIPANT

                                        The undersigned Participant hereby
                                        accepts the terms of this Award
                                        Agreement and the Plan.


                                        By:
                                            ------------------------------------
                                        Name of Participant:  Erik A. Lopez, Sr.



                                                                       EXHIBIT A

                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

1. ESTABLISHMENT, PURPOSE, AND TYPES OF AWARDS

     Commerce Energy Group, Inc. (the "Company") hereby establishes this
equity-based incentive compensation plan to be known as the "Commerce Energy
Group, Inc. 2006 Stock Incentive Plan" (hereinafter referred to as the "Plan"),
in order to provide incentives and awards to select employees, directors,
consultants, and advisors of the Company and its Affiliates.

     The Plan permits the granting of the following types of awards ("Awards"),
according to the Sections of the Plan listed here:

     Section 6  Options
     Section 7  Share Appreciation Rights
     Section 8  Restricted Shares, Restricted Share Units, and Unrestricted
                Shares
     Section 9  Deferred Share Units
     Section 10 Performance Awards

     The Plan is not intended to affect and shall not affect any stock options,
equity-based compensation, or other benefits that the Company or its Affiliates
may have provided, or may separately provide in the future pursuant to any
agreement, plan, or program that is independent of this Plan.

2. DEFINED TERMS

     Terms in the Plan that begin with an initial capital letter have the
defined meaning set forth in APPENDIX A, unless defined elsewhere in this Plan
or the context of their use clearly indicates a different meaning.

3. SHARES SUBJECT TO THE PLAN

     Subject to the provisions of Section 13 of the Plan, the maximum number of
Shares that the Company may issue for all Awards is 1,453,334 Shares, provided
that the Company shall not make additional awards under the Commonwealth Energy
Corporation 1999 Equity Incentive Plan, as amended and assumed by Commerce
Energy Group, Inc. For all Awards, the Shares issued pursuant to the Plan may be
authorized but unissued Shares, or Shares that the Company has reacquired or
otherwise holds in treasury.

     Shares that are subject to an Award that for any reason expires, is
forfeited, is cancelled, or becomes unexercisable, and Shares that are for any
other reason not paid or delivered under the Plan shall again, except to the
extent prohibited by Applicable Law, be available for subsequent Awards under
the Plan. In addition, the Committee may make future Awards with respect to
Shares that the Company retains from otherwise delivering pursuant to an Award
either (i) as payment of the exercise price of an Award, or (ii) in order to
satisfy the withholding or employment taxes due upon the grant, exercise,
vesting or distribution of an Award. Notwithstanding the foregoing, but subject
to adjustments pursuant to Section 13 below, the number of Shares that are
available for ISO Awards shall be determined, to the extent required under
applicable tax laws, by reducing the number of Shares designated in the
preceding paragraph by the number of Shares granted pursuant to Awards (whether
or not Shares are issued pursuant to such Awards), provided that any Shares that
are either issued or purchased under the Plan and forfeited back to the Plan, or
surrendered in payment of the Exercise Price for an Award shall be available for
issuance pursuant to future ISO Awards.

4. ADMINISTRATION

    (a) General. The Committee shall administer the Plan in accordance with its
terms, provided that the Board may act in lieu of the Committee on any matter.
The Committee shall hold meetings at such times and places as it may determine
and shall make such rules and regulations for the conduct of its business as it
deems advisable. In the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 2


absence of a duly appointed Committee or if the Board otherwise chooses to act
in lieu of the Committee, the Board shall function as the Committee for all
purposes of the Plan.

     (b) Committee Composition. The Board shall appoint the members of the
Committee. If and to the extent permitted by Applicable Law, the Committee may
authorize one or more Reporting Persons (or other officers) to make Awards to
Eligible Persons who are not Reporting Persons (or other officers whom the
Committee has specifically authorized to make Awards). The Board may at any time
appoint additional members to the Committee, remove and replace members of the
Committee with or without Cause, and fill vacancies on the Committee however
caused.

     (c) Powers of the Committee. Subject to the provisions of the Plan, the
Committee shall have the authority, in its sole discretion:

          (i) to determine Eligible Persons to whom Awards shall be granted from
     time to time and the number of Shares, units, or SARs to be covered by each
     Award;

          (ii) to determine, from time to time, the Fair Market Value of Shares;

          (iii) to determine, and to set forth in Award Agreements, the terms
     and conditions of all Awards, including any applicable exercise or purchase
     price, the installments and conditions under which an Award shall become
     vested (which may be based on performance), terminated, expired, cancelled,
     or replaced, and the circumstances for vesting acceleration or waiver of
     forfeiture restrictions, and other restrictions and limitations;

          (iv) to approve the forms of Award Agreements and all other documents,
     notices and certificates in connection therewith which need not be
     identical either as to type of Award or among Participants;

          (v) to construe and interpret the terms of the Plan and any Award
     Agreement, to determine the meaning of their terms, and to prescribe,
     amend, and rescind rules and procedures relating to the Plan and its
     administration; and

          (vi) in order to fulfill the purposes of the Plan and without amending
     the Plan, modify, cancel, or waive the Company's rights with respect to any
     Awards, to adjust or to modify Award Agreements for changes in Applicable
     Law, and to recognize differences in foreign law, tax policies, or customs;
     and

          (vii) to make all other interpretations and to take all other actions
     that the Committee may consider necessary or advisable to administer the
     Plan or to effectuate its purposes.

     Subject to Applicable Law and the restrictions set forth in the Plan, the
Committee may delegate administrative functions to individuals who are Reporting
Persons, officers, or Employees of the Company or its Affiliates.

     (d) Deference to Committee Determinations. The Committee shall have the
discretion to interpret or construe ambiguous, unclear, or implied (but omitted)
terms in any fashion it deems to be appropriate in its sole discretion, and to
make any findings of fact needed in the administration of the Plan or Award
Agreements. The Committee's prior exercise of its discretionary authority shall
not obligate it to exercise its authority in a like fashion thereafter. The
Committee's interpretation and construction of any provision of the Plan, or of
any Award or Award Agreement, shall be final, binding, and conclusive. The
validity of any such interpretation, construction, decision or finding of fact
shall not be given de novo review if challenged in court, by arbitration, or in
any other forum, and shall be upheld unless clearly made in bad faith or
materially affected by fraud.

     (e) No Liability; Indemnification. Neither the Board nor any Committee
member, nor any Person acting at the direction of the Board or the Committee,
shall be liable for any act, omission, interpretation, construction or
determination made in good faith with respect to the Plan, any Award or any
Award Agreement. The Company and its Affiliates shall pay or reimburse any
member of the Committee, as well as any Director, Employee, or Consultant who
takes action in connection with the Plan, for all expenses incurred with respect
to the Plan, and to the full extent



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 3


allowable under Applicable Law shall indemnify each and every one of them for
any claims, liabilities, and costs (including reasonable attorney's fees)
arising out of their good faith performance of duties under the Plan. The
Company and its Affiliates may obtain liability insurance for this purpose.

5. ELIGIBILITY

     (a) General Rule. The Committee may grant ISOs only to Employees (including
officers who are Employees) of the Company or an Affiliate that is a "parent
corporation" or "subsidiary corporation" within the meaning of Section 424 of
the Code, and may grant all other Awards to any Eligible Person. A Participant
who has been granted an Award may be granted an additional Award or Awards if
the Committee shall so determine, if such person is otherwise an Eligible Person
and if otherwise in accordance with the terms of the Plan.

     (b) Grant of Awards. Subject to the express provisions of the Plan, the
Committee shall determine from the class of Eligible Persons those individuals
to whom Awards under the Plan may be granted, the number of Shares subject to
each Award, the price (if any) to be paid for the Shares or the Award and, in
the case of Performance Awards, in addition to the matters addressed in Section
10 below, the specific objectives, goals and performance criteria that further
define the Performance Award. Each Award shall be evidenced by an Award
Agreement signed by the Company and, if required by the Committee, by the
Participant. The Award Agreement shall set forth the material terms and
conditions of the Award established by the Committee, and each Award shall be
subject to the terms and conditions set forth in Sections 23, 24, and 25 unless
otherwise specifically provided in an Award Agreement.

     (c) Limits on Awards. During any calendar year, no Participant may receive
Options and SARs that relate to more than 1,000,000 Shares. The Committee will
adjust this limitation pursuant to Section 13 below.

     (d) Replacement Awards. Subject to Applicable Laws (including any
associated Shareholder approval requirements), the Committee may, in its sole
discretion and upon such terms as it deems appropriate, require as a condition
of the grant of an Award to a Participant that the Participant surrender for
cancellation some or all of the Awards that have previously been granted to the
Participant under this Plan or otherwise. An Award that is conditioned upon such
surrender may or may not be the same type of Award, may cover the same (or a
lesser or greater) number of Shares as such surrendered Award, may have other
terms that are determined without regard to the terms or conditions of such
surrendered Award, and may contain any other terms that the Committee deems
appropriate. In the case of Options, these other terms may not involve an
Exercise Price that is lower than the Exercise Price of the surrendered Option
unless the Company's shareholders approve the grant itself or the program under
which the grant is made pursuant to the Plan.

6. OPTION AWARDS

     (a) Types; Documentation. The Committee may in its discretion grant ISOs to
any Employee and Non-ISOs to any Eligible Person, and shall evidence any such
grants in an Award Agreement that is delivered to the Participant. Each Option
shall be designated in the Award Agreement as an ISO or a Non-ISO, and the same
Award Agreement may grant both types of Options. At the sole discretion of the
Committee, any Option may be exercisable, in whole or in part, immediately upon
the grant thereof, or only after the occurrence of a specified event, or only in
installments, which installments may vary. Options granted under the Plan may
contain such terms and provisions not inconsistent with the Plan that the
Committee shall deem advisable in its sole and absolute discretion.

     (b) ISO $100,000 Limitation. To the extent that the aggregate Fair Market
Value of Shares with respect to which Options designated as ISOs first become
exercisable by a Participant in any calendar year (under this Plan and any other
plan of the Company or any Affiliate) exceeds $100,000, such excess Options
shall be treated as Non-ISOs. For purposes of determining whether the $100,000
limit is exceeded, the Fair Market Value of the Shares subject to an ISO shall
be determined as of the Grant Date. In reducing the number of Options treated as
ISOs to meet the $100,000 limit, the most recently granted Options shall be
reduced first. In the event that Section 422 of the Code is amended to alter the
limitation set forth therein, the limitation of this Section 6(b) shall be
automatically adjusted accordingly.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 4


     (c) Term of Options. Each Award Agreement shall specify a term at the end
of which the Option automatically expires, subject to earlier termination
provisions contained in Section 6(h) hereof; provided, that, the term of any
Option may not exceed ten years from the Grant Date. In the case of an ISO
granted to an Employee who is a Ten Percent Holder on the Grant Date, the term
of the ISO shall not exceed five years from the Grant Date.

     (d) Exercise Price. The exercise price of an Option shall be determined by
the Committee in its sole discretion and shall be set forth in the Award
Agreement, provided that (i) if an ISO is granted to an Employee who on the
Grant Date is a Ten Percent Holder, the per Share exercise price shall not be
less than 110% of the Fair Market Value per Share on the Grant Date, and (ii)
for all other Options, such per Share exercise price shall not be less than 100%
of the Fair Market Value per Share on the Grant Date. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of the federal securities laws applicable to proxy statement
disclosures.

     (e) Exercise of Option. The times, circumstances and conditions under which
an Option shall be exercisable shall be determined by the Committee in its sole
discretion and set forth in the Award Agreement. The Committee shall have the
discretion to determine whether and to what extent the vesting of Options shall
be tolled during any unpaid leave of absence; provided, however, that in the
absence of such determination, vesting of Options shall be tolled during any
such leave approved by the Company.

     (f) Minimum Exercise Requirements. An Option may not be exercised for a
fraction of a Share. The Committee may require in an Award Agreement that an
Option be exercised as to a minimum number of Shares, provided that such
requirement shall not prevent a Participant from purchasing the full number of
Shares as to which the Option is then exercisable.

     (g) Methods of Exercise. Prior to its expiration pursuant to the terms of
the applicable Award Agreement, and subject to the times, circumstances and
conditions for exercise contained in the applicable Award Agreement, each Option
may be exercised, in whole or in part (provided that the Company shall not be
required to issue fractional shares), by delivery of written notice of exercise
to the secretary of the Company accompanied by the full exercise price of the
Shares being purchased. In the case of an ISO, the Committee shall determine the
acceptable methods of payment on the Grant Date and it shall be included in the
applicable Award Agreement. The methods of payment that the Committee may in its
discretion accept or commit to accept in an Award Agreement include:

          (i) cash or check payable to the Company (in U.S. dollars);

          (ii) other Shares that (A) are owned by the Participant who is
     purchasing Shares pursuant to an Option, (B) have a Fair Market Value on
     the date of surrender equal to the aggregate exercise price of the Shares
     as to which the Option is being exercised, (C) were not acquired by such
     Participant pursuant to the exercise of an Option, unless such Shares have
     been owned by such Participant for at least six months or such other period
     as the Committee may determine, (D) are all, at the time of such surrender,
     free and clear of any and all claims, pledges, liens and encumbrances, or
     any restrictions which would in any manner restrict the transfer of such
     shares to or by the Company (other than such restrictions as may have
     existed prior to an issuance of such Shares by the Company to such
     Participant), and (E) are duly endorsed for transfer to the Company;

          (iii) a cashless exercise program that the Committee may approve, from
     time to time in its discretion, pursuant to which a Participant may
     concurrently provide irrevocable instructions (A) to such Participant's
     broker or dealer to effect the immediate sale of the purchased Shares and
     remit to the Company, out of the sale proceeds available on the settlement
     date, sufficient funds to cover the exercise price of the Option plus all
     applicable taxes required to be withheld by the Company by reason of such
     exercise, and (B) to the Company to deliver the certificates for the
     purchased Shares directly to such broker or dealer in order to complete the
     sale; or

          (iv) any combination of the foregoing methods of payment.

     The Company shall not be required to deliver Shares pursuant to the
exercise of an Option until payment of the full exercise price therefore is
received by the Company.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 5


     (h) Termination of Continuous Service. The Committee may establish and set
forth in the applicable Award Agreement the terms and conditions on which an
Option shall remain exercisable, if at all, following termination of a
Participant's Continuous Service. The Committee may waive or modify these
provisions at any time. To the extent that a Participant is not entitled to
exercise an Option at the date of his or her termination of Continuous Service,
or if the Participant (or other person entitled to exercise the Option) does not
exercise the Option to the extent so entitled within the time specified in the
Award Agreement or below (as applicable), the Option shall terminate and the
Shares underlying the unexercised portion of the Option shall revert to the Plan
and become available for future Awards. In no event may any Option be exercised
after the expiration of the Option term as set forth in the Award Agreement.

     The following provisions shall apply to the extent an Award Agreement does
not specify the terms and conditions upon which an Option shall terminate when
there is a termination of a Participant's Continuous Service:

          (i) Termination other than Upon Disability or Death or for Cause. In
     the event of termination of a Participant's Continuous Service (other than
     as a result of Participant's death, disability, retirement or termination
     for Cause), the Participant shall have the right to exercise an Option at
     any time within 90 days following such termination to the extent the
     Participant was entitled to exercise such Option at the date of such
     termination.

          (ii) Disability. In the event of termination of a Participant's
     Continuous Service as a result of his or her being Disabled, the
     Participant shall have the right to exercise an Option at any time within
     one year following such termination to the extent the Participant was
     entitled to exercise such Option at the date of such termination.

          (iii) Retirement. In the event of termination of a Participant's
     Continuous Service as a result of Participant's retirement, the Participant
     shall have the right to exercise the Option at any time within six months
     following such termination to the extent the Participant was entitled to
     exercise such Option at the date of such termination.

          (iv) Death. In the event of the death of a Participant during the
     period of Continuous Service since the Grant Date of an Option, or within
     thirty days following termination of the Participant's Continuous Service,
     the Option may be exercised, at any time within one year following the date
     of the Participant's death, by the Participant's estate or by a person who
     acquired the right to exercise the Option by bequest or inheritance, but
     only to the extent the right to exercise the Option had vested at the date
     of death or, if earlier, the date the Participant's Continuous Service
     terminated.

          (v) Cause. If the Committee determines that a Participant's Continuous
     Service terminated due to Cause, the Participant shall immediately forfeit
     the right to exercise any Option, and it shall be considered immediately
     null and void.

     (i) Reverse Vesting. The Committee in its sole discretion may allow a
Participant to exercise unvested Options, in which case the Shares then issued
shall be Restricted Shares having analogous vesting restrictions to the unvested
Options.

     (j) Buyout Provisions. The Committee may at any time offer to buy out an
Option, in exchange for a payment in cash or Shares, based on such terms and
conditions as the Committee shall establish and communicate to the Participant
at the time that such offer is made.

7. SHARE APPRECIATE RIGHTS (SARS)

     (a) Grants. The Committee may in its discretion grant Share Appreciation
Rights to any Eligible Person, in any of the following forms:

          (i) SARs related to Options. The Committee may grant SARs either
     concurrently with the grant of an Option or with respect to an outstanding
     Option, in which case the SAR shall extend to all or a portion of the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 6


     Shares covered by the related Option. An SAR shall entitle the Participant
     who holds the related Option, upon exercise of the SAR and surrender of the
     related Option, or portion thereof, to the extent the SAR and related
     Option each were previously unexercised, to receive payment of an amount
     determined pursuant to Section 7(e) below. Any SAR granted in connection
     with an ISO will contain such terms as may be required to comply with the
     provisions of Section 422 of the Code and the regulations promulgated
     thereunder.

          (ii) SARs Independent of Options. The Committee may grant SARs which
     are independent of any Option subject to such conditions as the Committee
     may in its discretion determine, which conditions will be set forth in the
     applicable Award Agreement.

          (iii) Limited SARs. The Committee may grant SARs exercisable only upon
     or in respect of a Change in Control or any other specified event, and such
     limited SARs may relate to or operate in tandem or combination with or
     substitution for Options or other SARs, or on a stand-alone basis, and may
     be payable in cash or Shares based on the spread between the exercise price
     of the SAR, and (A) a price based upon or equal to the Fair Market Value of
     the Shares during a specified period, at a specified time within a
     specified period before, after or including the date of such event, or (B)
     a price related to consideration payable to Company's shareholders
     generally in connection with the event.

     (b) Exercise Price. The per Share exercise price of an SAR shall be
determined in the sole discretion of the Committee, shall be set forth in the
applicable Award Agreement, and shall be no less than 100% of the Fair Market
Value of one Share. The exercise price of an SAR related to an Option shall be
the same as the exercise price of the related Option. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of federal securities laws applicable to proxy statement
disclosures.

     (c) Exercise of SARs. Unless the Award Agreement otherwise provides, an SAR
related to an Option will be exercisable at such time or times, and to the
extent, that the related Option will be exercisable; provided that the Award
Agreement shall not, without the approval of the shareholders of the Company,
provide for a vesting period for the exercise of the SAR that is more favorable
to the Participant than the exercise period for the related Option. An SAR may
not have a term exceeding ten years from its Grant Date. An SAR granted
independently of any other Award will be exercisable pursuant to the terms of
the Award Agreement, but shall not, without the approval of the shareholders of
the Company, provide for a vesting period for the exercise of the SAR that is
more favorable to the Participant than the exercise period for the related
Option. Whether an SAR is related to an Option or is granted independently, the
SAR may only be exercised when the Fair Market Value of the Shares underlying
the SAR exceeds the exercise price of the SAR.

     (d) Effect on Available Shares. All SARs that may be settled in shares of
the Company's stock shall be counted in full against the number of shares
available for award under the Plan, regardless of the number of shares actually
issued upon settlement of the SARs.

     (e) Payment. Upon exercise of an SAR related to an Option and the attendant
surrender of an exercisable portion of any related Award, the Participant will
be entitled to receive payment of an amount determined by multiplying --

          (i) the excess of the Fair Market Value of a Share on the date of
     exercise of the SAR over the exercise price per Share of the SAR, by

          (ii) the number of Shares with respect to which the SAR has been
     exercised.

     Notwithstanding the foregoing, an SAR granted independently of an Option
(i) may limit the amount payable to the Participant to a percentage, specified
in the Award Agreement but not exceeding one-hundred percent (100%), of the
amount determined pursuant to the preceding sentence, and (ii) shall be subject
to any payment or other restrictions that the Committee may at any time impose
in its discretion, including restrictions intended to conform the SARs with
Section 409A of the Code.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 7


     (f) Form and Terms of Payment. Subject to Applicable Law, the Committee
may, in its sole discretion, settle the amount determined under Section 7(e)
above solely in cash, solely in Shares (valued at their Fair Market Value on the
date of exercise of the SAR), or partly in cash and partly in Shares, with cash
paid in lieu of fractional shares. Unless otherwise provided in an Award
Agreement, all SARs shall be settled in Shares as soon as practicable after
exercise.

     (g) Termination of Employment or Consulting Relationship. The Committee
shall establish and set forth in the applicable Award Agreement the terms and
conditions on which an SAR shall remain exercisable, if at all, following
termination of a Participant's Continuous Service. The provisions of Section
6(h) above shall apply to the extent an Award Agreement does not specify the
terms and conditions upon which an SAR shall terminate when there is a
termination of a Participant's Continuous Service.

     (h) Buy out. The Committee has the same discretion to buy out SARs as it
has to take such actions pursuant to Section 6(j) above with respect to Options.

8. RESTRICTED SHARES, RESTRICTED SHARE UNITS, AND UNRESTRICTED SHARES

     (a) Grants. The Committee may in its sole discretion grant restricted
shares ("Restricted Shares") to any Eligible Person and shall evidence such
grant in an Award Agreement that is delivered to the Participant and that sets
forth the number of Restricted Shares, the purchase price for such Restricted
Shares (if any), and the terms upon which the Restricted Shares may become
vested. In addition, the Company may in its discretion grant the right to
receive Shares after certain vesting requirements are met ("Restricted Share
Units") to any Eligible Person and shall evidence such grant in an Award
Agreement that is delivered to the Participant which sets forth the number of
Shares (or formula, that may be based on future performance or conditions, for
determining the number of Shares) that the Participant shall be entitled to
receive upon vesting and the terms upon which the Shares subject to a Restricted
Share Unit may become vested. The Committee may condition any Award of
Restricted Shares or Restricted Share Units to a Participant on receiving from
the Participant such further assurances and documents as the Committee may
require to enforce the restrictions. In addition, the Committee may grant Awards
hereunder in the form of unrestricted shares ("Unrestricted Shares"), which
shall vest in full upon the date of grant or such other date as the Committee
may determine or which the Committee may issue pursuant to any program under
which one or more Eligible Persons (selected by the Committee in its sole
discretion) elect to receive Unrestricted Shares in lieu of cash bonuses that
would otherwise be paid.

     (b) Vesting and Forfeiture. The Committee shall set forth in an Award
Agreement granting Restricted Shares or Restricted Share Units, the terms and
conditions under which the Participant's interest in the Restricted Shares or
the Shares subject to Restricted Share Units will become vested and
non-forfeitable. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, upon termination of a Participant's Continuous
Service for any other reason, the Participant shall forfeit his or her
Restricted Shares and Restricted Share Units; provided that if a Participant
purchases the Restricted Shares and forfeits them for any reason, the Company
shall return the purchase price to the Participant only if and to the extent set
forth in an Award Agreement.

     (c) Issuance of Restricted Shares Prior to Vesting. The Company shall issue
stock certificates that evidence Restricted Shares pending the lapse of
applicable restrictions, and that bear a legend making appropriate reference to
such restrictions. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, the Company or a third party that the Company
designates shall hold such Restricted Shares and any dividends that accrue with
respect to Restricted Shares pursuant to Section 8(e) below.

     (d) Issuance of Shares upon Vesting. As soon as practicable after vesting
of a Participant's Restricted Shares (or Shares underlying Restricted Share
Units) and the Participant's satisfaction of applicable tax withholding
requirements, the Company shall release to the Participant, free from the
vesting restrictions, one Share for each vested Restricted Share (or issue one
Share free of the vesting restriction for each vested Restricted Share Unit),
unless an Award Agreement provides otherwise. No fractional shares shall be
distributed, and cash shall be paid in lieu thereof.



Commerce Energy Group, Inc.
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     (e) Dividends Payable on Vesting. Whenever Shares are released to a
Participant or duly-authorized transferee pursuant to Section 8(d) above as a
result of the vesting of Restricted Shares or the Shares underlying Restricted
Share Units are issued to a Participant pursuant to Section 8(d) above, such
Participant or duly-authorized transferee shall also be entitled to receive
(unless otherwise provided in the Award Agreement), with respect to each Share
released or issued, an amount equal to any cash dividends (plus, in the sole
discretion of the Committee, simple interest at a rate as the Committee may
determine) and a number of Shares equal to any stock dividends, which were
declared and paid to the holders of Shares between the Grant Date and the date
such Share is released from the vesting restrictions in the case of Restricted
Shares or issued in the case of Restricted Share Units.

     (f) Section 83(b) Elections. A Participant may make an election under
Section 83(b) of the Code (the "Section 83(b) Election") with respect to
Restricted Shares. If a Participant who has received Restricted Share Units
provides the Committee with written notice of his or her intention to make a
Section 83(b) Election with respect to the Shares subject to such Restricted
Share Units, the Committee may in its discretion convert the Participant's
Restricted Share Units into Restricted Shares, on a one-for-one basis, in full
satisfaction of the Participant's Restricted Share Unit Award. The Participant
may then make a Section 83(b) Election with respect to those Restricted Shares.
Shares with respect to which a Participant makes a Section 83(b) Election shall
not be eligible for deferral pursuant to Section 9 below.

     (g) Deferral Elections. At any time within the thirty-day period (or other
shorter or longer period that the Committee selects in its sole discretion) in
which a Participant who is a member of a select group of management or highly
compensated employees (within the meaning of the Code) receives an Award of
either Restricted Shares or Restricted Share Units, the Committee may permit the
Participant to irrevocably elect, on a form provided by and acceptable to the
Committee, to defer the receipt of all or a percentage of the Shares that would
otherwise be transferred to the Participant upon the vesting of such Award. If
the Participant makes this election, the Shares subject to the election, and any
associated dividends and interest, shall be credited to an account established
pursuant to Section 9 hereof on the date such Shares would otherwise have been
released or issued to the Participant pursuant to Section 8(d) above.

9. DEFERRED SHARE UNITS

     (a) Elections to Defer. The Committee may permit any Eligible Person who is
a Director, Consultant or member of a select group of management or highly
compensated employees (within the meaning of the Code) to irrevocably elect, on
a form provided by and acceptable to the Committee (the "Election Form"), to
forego the receipt of cash or other compensation (including the Shares
deliverable pursuant to any Award other than Restricted Shares for which a
Section 83(b) Election has been made), and in lieu thereof to have the Company
credit to an internal Plan account (the "Account") a number of deferred share
units ("Deferred Share Units") having a Fair Market Value equal to the Shares
and other compensation deferred. These credits will be made at the end of each
calendar month during which compensation is deferred. Each Election Form shall
take effect on the first day of the next calendar year (or on the first day of
the next calendar month in the case of an initial election by a Participant who
first becomes eligible to defer hereunder) after its delivery to the Company,
subject to Section 8(g) regarding deferral of Restricted Shares and Restricted
Share Units and to Section 10(e) regarding deferral of Performance Awards,
unless the Company sends the Participant a written notice explaining why the
Election Form is invalid within five business days after the Company receives
it. Notwithstanding the foregoing sentence: (i) Election Forms shall be
ineffective with respect to any compensation that a Participant earns before the
date on which the Company receives the Election Form, and (ii) the Committee may
unilaterally make awards in the form of Deferred Share Units, regardless of
whether or not the Participant foregoes other compensation.

     (b) Vesting. Unless an Award Agreement expressly provides otherwise, each
Participant shall be 100% vested at all times in any Shares subject to Deferred
Share Units.

     (c) Issuances of Shares. The Company shall provide a Participant with one
Share for each Deferred Share Unit in five substantially equal annual
installments that are issued before the last day of each of the five calendar
years that end after the date on which the Participant's Continuous Service
terminates, unless --



Commerce Energy Group, Inc.
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Page 9


          (i) the Participant has properly elected a different form of
     distribution, on a form approved by the Committee, that permits the
     Participant to select any combination of a lump sum and annual installments
     that are completed within ten years following termination of the
     Participant's Continuous Service, and

          (ii) the Company received the Participant's distribution election form
     at the time the Participant elects to defer the receipt of cash or other
     compensation pursuant to Section 9(a), provided that such election may be
     changed through any subsequent election that (i) is delivered to the
     Company at least one year before the date on which distributions are
     otherwise scheduled to commence pursuant to the Participant's election, and
     (ii) defers the commencement of distributions by at least five years from
     the originally scheduled commencement date.

     Fractional shares shall not be issued, and instead shall be paid out in
cash.

     (d) Crediting of Dividends. Whenever Shares are issued to a Participant
pursuant to Section 9(c) above, such Participant shall also be entitled to
receive, with respect to each Share issued, a cash amount equal to any cash
dividends (plus simple interest at a rate of five percent per annum, or such
other reasonable rate as the Committee may determine), and a number of Shares
equal to any stock dividends which were declared and paid to the holders of
Shares between the Grant Date and the date such Share is issued.

     (e) Emergency Withdrawals. In the event a Participant suffers an
unforeseeable emergency within the contemplation of this Section and Section
409A of the Code, the Participant may apply to the Company for an immediate
distribution of all or a portion of the Participant's Deferred Share Units. The
unforeseeable emergency must result from a sudden and unexpected illness or
accident of the Participant, the Participant's spouse, or a dependent (within
the meaning of Section 152(a) of the Code) of the Participant, casualty loss of
the Participant's property, or other similar extraordinary and unforeseeable
conditions beyond the control of the Participant. Examples of purposes which are
not considered unforeseeable emergencies include post-secondary school expenses
or the desire to purchase a residence. In no event will a distribution be made
to the extent the unforeseeable emergency could be relieved through
reimbursement or compensation by insurance or otherwise, or by liquidation of
the Participant's nonessential assets to the extent such liquidation would not
itself cause a severe financial hardship. The amount of any distribution
hereunder shall be limited to the amount necessary to relieve the Participant's
unforeseeable emergency plus amounts necessary to pay taxes reasonably
anticipated as a result of the distribution. The Committee shall determine
whether a Participant has a qualifying unforeseeable emergency and the amount
which qualifies for distribution, if any. The Committee may require evidence of
the purpose and amount of the need, and may establish such application or other
procedures as it deems appropriate.

     (f) Unsecured Rights to Deferred Compensation. A Participant's right to
Deferred Share Units shall at all times constitute an unsecured promise of the
Company to pay benefits as they come due. The right of the Participant or the
Participant's duly-authorized transferee to receive benefits hereunder shall be
solely an unsecured claim against the general assets of the Company. Neither the
Participant nor the Participant's duly-authorized transferee shall have any
claim against or rights in any specific assets, shares, or other funds of the
Company.

10. PERFORMANCE AWARDS

     (a) Performance Units. Subject to the limitations set forth in paragraph
(c) hereof, the Committee may in its discretion grant Performance Units to any
Eligible Person and shall evidence such grant in an Award Agreement that is
delivered to the Participant which sets forth the terms and conditions of the
Award.

     (b) Performance Compensation Awards. Subject to the limitations set forth
in paragraph (c) hereof, the Committee may, at the time of grant of a
Performance Unit, designate such Award as a "Performance Compensation Award"
(payable in cash or Shares) in order that such Award constitutes "qualified
performance-based compensation" under Code Section 162(m), in which event the
Committee shall have the power to grant such Performance Compensation Award upon
terms and conditions that qualify it as "qualified performance-based
compensation" within the meaning of Code Section 162(m). With respect to each
such Performance Compensation Award, the Committee shall establish, in writing
within the time required under Code Section 162(m), a "Performance Period,"
"Performance Measure(s)", and "Performance Formula(e)" (each such term being
hereinafter



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 10


defined). Once established for a Performance Period, the Performance Measure(s)
and Performance Formula(e) shall not be amended or otherwise modified to the
extent such amendment or modification would cause the compensation payable
pursuant to the Award to fail to constitute qualified performance-based
compensation under Code Section 162(m).

     A Participant shall be eligible to receive payment in respect of a
Performance Compensation Award only to the extent that the Performance
Measure(s) for such Award is achieved and the Performance Formula(e) as applied
against such Performance Measure(s) determines that all or some portion of such
Participant's Award has been earned for the Performance Period. As soon as
practicable after the close of each Performance Period, the Committee shall
review and certify in writing whether, and to what extent, the Performance
Measure(s) for the Performance Period have been achieved and, if so, determine
and certify in writing the amount of the Performance Compensation Award to be
paid to the Participant and, in so doing, may use negative discretion to
decrease, but not increase, the amount of the Award otherwise payable to the
Participant based upon such performance.

     (c) Limitations on Awards. The maximum Performance Unit Award and the
maximum Performance Compensation Award that any one Participant may receive for
any one Performance Period shall not together exceed 1,000,000 Shares and
$1,000,000 in cash. The Committee shall have the discretion to provide in any
Award Agreement that any amounts earned in excess of these limitations will
either be credited as Deferred Share Units, or as deferred cash compensation
under a separate plan of the Company (provided in the latter case that such
deferred compensation either bears a reasonable rate of interest or has a value
based on one or more predetermined actual investments). Any amounts for which
payment to the Participant is deferred pursuant to the preceding sentence shall
be paid to the Participant in a future year or years not earlier than, and only
to the extent that, the Participant is either not receiving compensation in
excess of these limits for a Performance Period, or is not subject to the
restrictions set forth under Section 162(b) of the Code.

     (d) Definitions.

          (i) "Performance Formula" means, for a Performance Period, one or more
     objective formulas or standards established by the Committee for purposes
     of determining whether or the extent to which an Award has been earned
     based on the level of performance attained or to be attained with respect
     to one or more Performance Measure(s). Performance Formulae may vary from
     Performance Period to Performance Period and from Participant to
     Participant and may be established on a stand-alone basis, in tandem or in
     the alternative.

          (ii) "Performance Measure" means one or more of the following selected
     by the Committee to measure Company, Affiliate, and/or business unit
     performance for a Performance Period, whether in absolute or relative terms
     (including, without limitation, terms relative to a peer group or index):
     basic, diluted, or adjusted earnings per share; sales or revenue; earnings
     before interest, taxes, and other adjustments (in total or on a per share
     basis); basic or adjusted net income; returns on equity, assets, capital,
     revenue or similar measure; economic value added; working capital; total
     shareholder return; and product development, product market share,
     research, licensing, litigation, human resources, information services,
     mergers, acquisitions, sales of assets of Affiliates or business units.
     Each such measure shall be, to the extent applicable, determined in
     accordance with generally accepted accounting principles as consistently
     applied by the Company (or such other standard applied by the Committee)
     and, if so determined by the Committee, and in the case of a Performance
     Compensation Award, to the extent permitted under Code Section 162(m),
     adjusted to omit the effects of extraordinary items, gain or loss on the
     disposal of a business segment, unusual or infrequently occurring events
     and transactions and cumulative effects of changes in accounting
     principles. Performance Measures may vary from Performance Period to
     Performance Period and from Participant to Participant, and may be
     established on a stand-alone basis, in tandem or in the alternative.

          (iii) "Performance Period" means one or more periods of time (of not
     less than one fiscal year of the Company), as the Committee may designate,
     over which the attainment of one or more Performance Measure(s) will be
     measured for the purpose of determining a Participant's rights in respect
     of an Award.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 11


     (e) Deferral Elections. At any time prior to the date that is at least six
months before the close of a Performance Period (or shorter or longer period
that the Committee selects) with respect to an Award of either Performance Units
or Performance Compensation, the Committee may permit a Participant who is a
member of a select group of management or highly compensated employees (within
the meaning of the Code) to irrevocably elect, on a form provided by and
acceptable to the Committee, to defer the receipt of all or a percentage of the
cash or Shares that would otherwise be transferred to the Participant upon the
vesting of such Award. If the Participant makes this election, the cash or
Shares subject to the election, and any associated interest and dividends, shall
be credited to an account established pursuant to Section 9 hereof on the date
such cash or Shares would otherwise have been released or issued to the
Participant pursuant to Section 10(a) or Section 10(b) above.

11. TAXES

     (a) General. As a condition to the issuance or distribution of Shares
pursuant to the Plan, the Participant (or in the case of the Participant's
death, the person who succeeds to the Participant's rights) shall make such
arrangements as the Company may require for the satisfaction of any applicable
federal, state, local or foreign withholding tax obligations that may arise in
connection with the Award and the issuance of Shares. The Company shall not be
required to issue any Shares until such obligations are satisfied. If the
Committee allows the withholding or surrender of Shares to satisfy a
Participant's tax withholding obligations, the Committee shall not allow Shares
to be withheld in an amount that exceeds the minimum statutory withholding rates
for federal and state tax purposes, including payroll taxes.

     (b) Default Rule for Employees. In the absence of any other arrangement, an
Employee shall be deemed to have directed the Company to withhold or collect
from his or her cash compensation an amount sufficient to satisfy such tax
obligations from the next payroll payment otherwise payable after the date of
the exercise of an Award.

     (c) Special Rules. In the case of a Participant other than an Employee (or
in the case of an Employee where the next payroll payment is not sufficient to
satisfy such tax obligations, with respect to any remaining tax obligations), in
the absence of any other arrangement and to the extent permitted under
Applicable Law, the Participant shall be deemed to have elected to have the
Company withhold from the Shares or cash to be issued pursuant to an Award that
number of Shares having a Fair Market Value determined as of the applicable Tax
Date (as defined below) or cash equal to the amount required to be withheld. For
purposes of this Section 11, the Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined under the Applicable Law (the "Tax Date").

     (d) Surrender of Shares. If permitted by the Committee, in its discretion,
a Participant may satisfy the minimum applicable tax withholding and employment
tax obligations associated with an Award by surrendering Shares to the Company
(including Shares that would otherwise be issued pursuant to the Award) that
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld. In the case of Shares previously acquired from
the Company that are surrendered under this Section 11, such Shares must have
been owned by the Participant for more than six months on the date of surrender
(or such longer period of time the Company may in its discretion require).

     (e) Income Taxes and Deferred Compensation. Participants are solely
responsible and liable for the satisfaction of all taxes and penalties that may
arise in connection with Awards (including any taxes arising under Section 409A
of the Code), and the Company shall not have any obligation to indemnify or
otherwise hold any Participant harmless from any or all of such taxes. The
Committee shall have the discretion to organize any deferral program, to require
deferral election forms, and to grant or to unilaterally modify any Award in a
manner that (i) conforms with the requirements of Section 409A of the Code with
respect to compensation that is deferred and that vests after December 31, 2004,
(ii) that voids any Participant election to the extent it would violate Section
409A of the Code, and (iii) for any distribution election that would violate
Section 409A of the Code, to make distributions pursuant to the Award at the
earliest to occur of a distribution event that is allowable under Section 409A
of the Code or any distribution event that is both allowable under Section 409A
of the Code and is elected by the Participant, subject to any valid second
election to defer, provided that the Committee permits second elections to defer
in accordance with



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 12


Section 409A(a)(4)(C). The Committee shall have the sole discretion to interpret
the requirements of the Code, including Section 409A, for purposes of the Plan
and all Awards.

12. NON-TRANSFERABILITY OF AWARDS

     (a) General. Except as set forth in this Section 12, or as otherwise
approved by the Committee, Awards may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent or distribution. The designation of a beneficiary by a
Participant will not constitute a transfer. An Award may be exercised, during
the lifetime of the holder of an Award, only by such holder, the duly-authorized
legal representative of a Participant who is Disabled, or a transferee permitted
by this Section 12.

     (b) Limited Transferability Rights. Notwithstanding anything else in this
Section 12, the Committee may in its discretion provide in an Award Agreement
that an Award other than an ISO may be transferred, on such terms and conditions
as the Committee deems appropriate, either (i) by instrument to the
Participant's "Immediate Family" (as defined below), (ii) by instrument to an
inter vivos or testamentary trust (or other entity) in which the Award is to be
passed to the Participant's designated beneficiaries, or (iii) by gift to
charitable institutions. Any transferee of the Participant's rights shall
succeed and be subject to all of the terms of the applicable Award Agreement and
the Plan. "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, and shall include adoptive relationships.

13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER
TRANSACTIONS

     (a) Changes in Capitalization. The Committee shall equitably adjust the
number of Shares covered by each outstanding Award, and the number of Shares
that have been authorized for issuance under the Plan but as to which no Awards
have yet been granted or that have been returned to the Plan upon cancellation,
forfeiture, or expiration of an Award, as well as the price per Share covered by
each such outstanding Award, to reflect any increase or decrease in the number
of issued Shares resulting from a stock-split, reverse stock-split, stock
dividend, combination, recapitalization or reclassification of the Shares, or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company. In the event of any such transaction or
event, the Committee may provide in substitution for any or all outstanding
Options under the Plan such alternative consideration (including securities of
any surviving entity) as it may in good faith determine to be equitable under
the circumstances and may require in connection therewith the surrender of all
Options so replaced. In any case, such substitution of securities shall not
require the consent of any person who is granted Options pursuant to the Plan.
Except as expressly provided herein, or in an Award Agreement, if the Company
issues for consideration shares of stock of any class or securities convertible
into shares of stock of any class, the issuance shall not affect, and no
adjustment by reason thereof shall be required to be made with respect to the
number or price of Shares subject to any Award.

     (b) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company other than as part of a Change of Control, each Award
will terminate immediately prior to the consummation of such action, subject to
the ability of the Committee to exercise any discretion authorized in the case
of a Change in Control.

     (c) Change in Control. In the event of a Change in Control, the Committee
may in its sole and absolute discretion and authority, without obtaining the
approval or consent of the Company's shareholders or any Participant with
respect to his or her outstanding Awards, take one or more of the following
actions:

          (i) arrange for or otherwise provide that each outstanding Award shall
     be assumed or a substantially similar award shall be substituted by a
     successor corporation or a parent or subsidiary of such successor
     corporation (the "Successor Corporation");

          (ii) accelerate the vesting of Awards so that Awards shall vest (and,
     to the extent applicable, become exercisable) as to the Shares that
     otherwise would have been unvested and provide that repurchase rights of
     the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 13


     Company with respect to Shares issued upon exercise of an Award shall lapse
     as to the Shares subject to such repurchase right;

          (iii) arrange or otherwise provide for the payment of cash or other
     consideration to Participants in exchange for the satisfaction and
     cancellation of outstanding Awards;

          (iv) terminate upon the consummation of the transaction, provided that
     the Committee may in its sole discretion provide for vesting of all or some
     outstanding Awards in full as of a date immediately prior to consummation
     of the Change of Control. To the extent that an Award is not exercised
     prior to consummation of a transaction in which the Award is not being
     assumed or substituted, such Award shall terminate upon such consummation;
     or

          (v) make such other modifications, adjustments or amendments to
     outstanding Awards or this Plan as the Committee deems necessary or
     appropriate, subject however to the terms of Section 15(a) below.

     Notwithstanding the above, in the event a Participant holding an Award
assumed or substituted by the Successor Corporation in a Change in Control is
Involuntarily Terminated by the Successor Corporation in connection with, or
within 12 months following consummation of, the Change in Control, then any
assumed or substituted Award held by the terminated Participant at the time of
termination shall accelerate and become fully vested (and exercisable in full in
the case of Options and SARs), and any repurchase right applicable to any Shares
shall lapse in full, unless an Award Agreement provides for a more restrictive
acceleration or vesting schedule or more restrictive limitations on the lapse of
repurchase rights or otherwise places additional restrictions, limitations and
conditions on an Award. The acceleration of vesting and lapse of repurchase
rights provided for in the previous sentence shall occur immediately prior to
the effective date of the Participant's termination, unless an Award Agreement
provides otherwise.

     (d) Certain Distributions. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Committee may, in its discretion,
appropriately adjust the price per Share covered by each outstanding Award to
reflect the effect of such distribution.

14. TIME OF GRANTING AWARDS.

     The date of grant ("Grant Date") of an Award shall be the date on which the
Committee makes the determination granting such Award or such other date as is
determined by the Committee, provided that in the case of an ISO, the Grant Date
shall be the later of the date on which the Committee makes the determination
granting such ISO or the date of commencement of the Participant's employment
relationship with the Company.

15. MODIFICATION OF AWARDS AND SUBSTITUTION OF OPTIONS.

     (a) Modification, Extension, and Renewal of Awards. Within the limitations
of the Plan, the Committee may modify an Award to accelerate the rate at which
an Option or SAR may be exercised (including without limitation permitting an
Option or SAR to be exercised in full without regard to the installment or
vesting provisions of the applicable Award Agreement or whether the Option or
SAR is at the time exercisable, to the extent it has not previously been
exercised), to accelerate the vesting of any Award, to extend or renew
outstanding Awards or to accept the cancellation of outstanding Awards to the
extent not previously exercised. However, the Committee may not cancel an
outstanding option that is underwater for the purpose of reissuing the option to
the participant at a lower exercise price or granting a replacement award of a
different type. Notwithstanding the foregoing provision, no modification of an
outstanding Award shall materially and adversely affect such Participant's
rights thereunder, unless either the Participant provides written consent or
there is an express Plan provision permitting the Committee to act unilaterally
to make the modification.

     (b) Substitution of Options. Notwithstanding any inconsistent provisions or
limits under the Plan, in the event the Company or an Affiliate acquires
(whether by purchase, merger or otherwise) all or substantially all of



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 14


outstanding capital stock or assets of another corporation or in the event of
any reorganization or other transaction qualifying under Section 424 of the
Code, the Committee may, in accordance with the provisions of that Section,
substitute Options for options under the plan of the acquired company provided
(i) the excess of the aggregate fair market value of the shares subject to an
option immediately after the substitution over the aggregate option price of
such shares is not more than the similar excess immediately before such
substitution and (ii) the new option does not give persons additional benefits,
including any extension of the exercise period.

16. TERM OF PLAN.

     The Plan shall continue in effect for a term of ten (10) years from its
effective date as determined under Section 20 below, unless the Plan is sooner
terminated under Section 17 below.

17. AMENDMENT AND TERMINATION OF THE PLAN.

     (a) Authority to Amend or Terminate. Subject to Applicable Laws, the Board
may from time to time amend, alter, suspend, discontinue, or terminate the Plan.

     (b) Effect of Amendment or Termination. No amendment, suspension, or
termination of the Plan shall materially and adversely affect Awards already
granted unless either it relates to an adjustment pursuant to Section 13 above,
or it is otherwise mutually agreed between the Participant and the Committee,
which agreement must be in writing and signed by the Participant and the
Company. Notwithstanding the foregoing, the Committee may amend the Plan to
eliminate provisions which are no longer necessary as a result of changes in tax
or securities laws or regulations, or in the interpretation thereof.

18. CONDITIONS UPON ISSUANCE OF SHARES.

     Notwithstanding any other provision of the Plan or any agreement entered
into by the Company pursuant to the Plan, the Company shall not be obligated,
and shall have no liability for failure, to issue or deliver any Shares under
the Plan unless such issuance or delivery would comply with Applicable Law, with
such compliance determined by the Company in consultation with its legal
counsel.

19. RESERVATION OF SHARES.

     The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.

20. EFFECTIVE DATE.

     This Plan shall become effective on the date on which it has received
approval by a vote of a majority of the votes cast at a duly held meeting of the
Company's shareholders (or by such other shareholder vote that the Administrator
determines to be sufficient for the issuance of Shares or stock options
according to the Company's governing documents and applicable state law).

21. CONTROLLING LAW.

     All disputes relating to or arising from the Plan shall be governed by the
internal substantive laws (and not the laws of conflicts of laws) of the State
of Delaware, to the extent not preempted by United States federal law. If any
provision of this Plan is held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions shall continue to be fully
effective.

22. LAWS AND REGULATIONS.

     (a) U.S. Securities Laws. This Plan, the grant of Awards, and the exercise
of Options and SARs under this Plan, and the obligation of the Company to sell
or deliver any of its securities (including, without limitation, Options,



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 15


Restricted Shares, Restricted Share Units, Deferred Share Units, and Shares)
under this Plan shall be subject to all Applicable Law. In the event that the
Shares are not registered under the Securities Act of 1933, as amended (the
"Act"), or any applicable state securities laws prior to the delivery of such
Shares, the Company may require, as a condition to the issuance thereof, that
the persons to whom Shares are to be issued represent and warrant in writing to
the Company that such Shares are being acquired by him or her for investment for
his or her own account and not with a view to, for resale in connection with, or
with an intent of participating directly or indirectly in, any distribution of
such Shares within the meaning of the Act, and a legend to that effect may be
placed on the certificates representing the Shares.

     (b) Other Jurisdictions. To facilitate the making of any grant of an Award
under this Plan, the Committee may provide for such special terms for Awards to
Participants who are foreign nationals or who are employed by the Company or any
Affiliate outside of the United States of America as the Committee may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom. The Company may adopt rules and procedures relating to the operation and
administration of this Plan to accommodate the specific requirements of local
laws and procedures of particular countries. Without limiting the foregoing, the
Company is specifically authorized to adopt rules and procedures regarding the
conversion of local currency, taxes, withholding procedures and handling of
stock certificates which vary with the customs and requirements of particular
countries. The Company may adopt sub-plans and establish escrow accounts and
trusts as may be appropriate or applicable to particular locations and
countries.

23. NO SHAREHOLDER RIGHTS.

     Neither a Participant nor any transferee of a Participant shall have any
rights as a shareholder of the Company with respect to any Shares underlying any
Award until the date of issuance of a share certificate to a Participant or a
transferee of a Participant for such Shares in accordance with the Company's
governing instruments and Applicable Law. Prior to the issuance of Shares
pursuant to an Award, a Participant shall not have the right to vote or to
receive dividends or any other rights as a shareholder with respect to the
Shares underlying the Award, notwithstanding its exercise in the case of Options
and SARs. No adjustment will be made for a dividend or other right that is
determined based on a record date prior to the date the stock certificate is
issued, except as otherwise specifically provided for in this Plan.

24. NO EMPLOYMENT RIGHTS.

     The Plan shall not confer upon any Participant any right to continue an
employment, service or consulting relationship with the Company, nor shall it
affect in any way a Participant's right or the Company's right to terminate the
Participant's employment, service, or consulting relationship at any time, with
or without Cause.

25. TERMINATION, RESCISSION AND RECAPTURE.

     (a) Each Award under the Plan is intended to align the Participant's
long-term interest with those of the Company. If the Participant engages in
certain activities discussed below, either during employment or after employment
with the Company terminates for any reason, the Participant is acting contrary
to the long-term interests of the Company. Accordingly, except as otherwise
expressly provided in the Award Agreement, the Company may terminate any
outstanding, unexercised, unexpired, unpaid, or deferred Awards ("Termination"),
rescind any exercise, payment or delivery pursuant to the Award ("Rescission"),
or recapture any Common Stock (whether restricted or unrestricted) or proceeds
from the Participant's sale of Shares issued pursuant to the Award
("Recapture"), if the Participant does not comply with the conditions of
subsections (b) and (c) hereof (collectively, the "Conditions").

     (b) A Participant shall not, without the Company's prior written
authorization, disclose to anyone outside the Company, or use in other than the
Company's business, any proprietary or confidential information or material, as
those or other similar terms are used in any applicable patent, confidentiality,
inventions, secrecy, or other agreement between the Participant and the Company
with regard to any such proprietary or confidential information or material.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 16


     (c) Pursuant to any agreement between the Participant and the Company with
regard to intellectual property (including but not limited to patents,
trademarks, copyrights, trade secrets, inventions, developments, improvements,
proprietary information, confidential business and personnel information), a
Participant shall promptly disclose and assign to the Company or its designee
all right, title, and interest in such intellectual property, and shall take all
reasonable steps necessary to enable the Company to secure all right, title and
interest in such intellectual property in the United States and in any foreign
country.

     (d) Upon exercise, payment, or delivery of cash or Common Stock pursuant to
an Award, the Participant shall certify on a form acceptable to the Company that
he or she is in compliance with the terms and conditions of the Plan and, if a
severance of Continuous Service has occurred for any reason, shall state the
name and address of the Participant's then-current employer or any entity for
which the Participant performs business services and the Participant's title,
and shall identify any organization or business in which the Participant owns a
greater-than-five-percent equity interest.

     (e) If the Company determines, in its sole and absolute discretion, that
(i) a Participant has violated any of the Conditions or (ii) during his or her
Continuous Service, or within one year after its termination for any reason, a
Participant (a) has rendered services to or otherwise directly or indirectly
engaged in or assisted, any organization or business that, in the judgment of
the Company in its sole and absolute discretion, is or is working to become
competitive with the Company; (b) has solicited any non-administrative employee
of the Company to terminate employment with the Company; or (c) has engaged in
activities which are materially prejudicial to or in conflict with the interests
of the Company, including any breaches of fiduciary duty or the duty of loyalty,
then the Company may, in its sole and absolute discretion, impose a Termination,
Rescission, and/or Recapture with respect to any or all of the Participant's
relevant Awards, Shares, and the proceeds thereof.

     (f) Within ten days after receiving notice from the Company of any such
activity, the Participant shall deliver to the Company the Shares acquired
pursuant to the Award, or, if Participant has sold the Shares, the gain
realized, or payment received as a result of the rescinded exercise, payment, or
delivery; provided, that if the Participant returns Shares that the Participant
purchased pursuant to the exercise of an Option (or the gains realized from the
sale of such Common Stock), the Company shall promptly refund the exercise
price, without earnings, that the Participant paid for the Shares. Any payment
by the Participant to the Company pursuant to this Section 21 shall be made
either in cash or by returning to the Company the number of Shares that the
Participant received in connection with the rescinded exercise, payment, or
delivery. It shall not be a basis for Termination, Rescission or Recapture if
after termination of a Participant's Continuous Service, the Participant
purchases, as an investment or otherwise, stock or other securities of such an
organization or business, so long as (i) such stock or other securities are
listed upon a recognized securities exchange or traded over-the-counter, and
(ii) such investment does not represent more than a five percent (5%) equity
interest in the organization or business.

     (g) Notwithstanding the foregoing provisions of this Section, the Company
has sole and absolute discretion not to require Termination, Rescission and/or
Recapture, and its determination not to require Termination, Rescission and/or
Recapture with respect to any particular act by a particular Participant or
Award shall not in any way reduce or eliminate the Company's authority to
require Termination, Rescission and/or Recapture with respect to any other act
or Participant or Award. Nothing in this Section shall be construed to impose
obligations on the Participant to refrain from engaging in lawful competition
with the Company after the termination of employment that does not violate
subsections (b) or (c) of this Section, other than any obligations that are part
of any separate agreement between the Company and the Participant or that arise
under applicable law.

     (h) All administrative and discretionary authority given to the Company
under this Section shall be exercised by the most senior human resources
executive of the Company or such other person or committee (including without
limitation the Committee) as the Committee may designate from time to time.

     (i) Notwithstanding any provision of this Section, if any provision of this
Section is determined to be unenforceable or invalid under any applicable law,
such provision will be applied to the maximum extent permitted by applicable
law, and shall automatically be deemed amended in a manner consistent with its
objectives to the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 17


extent necessary to conform to any limitations required under applicable law.
Furthermore, if any provision of this Section is illegal under any applicable
law, such provision shall be null and void to the extent necessary to comply
with applicable law.

     Notwithstanding the foregoing, but subject to any contrary terms set forth
in any Award Agreement, this Section shall not be applicable: (i) to any
Participant who is not, on the Award Date, an Employee of the Company or its
Affiliates; and (ii) to any Participant from and after his or her termination of
Continuous Service after a Change in Control.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 18


                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                   ----------

                             APPENDIX A: DEFINITIONS

                                   ----------

     As used in the Plan, the following definitions shall apply:

     "AFFILIATE" means, with respect to any Person (as defined below), any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person or the power to elect directors, whether through the ownership of
voting securities, by contract or otherwise; and the terms "affiliated,"
"controlling" and "controlled" have meanings correlative to the foregoing.

     "APPLICABLE LAW" means the legal requirements relating to the
administration of options and share-based plans under applicable U.S. federal
and state laws, the Code, any applicable stock exchange or automated quotation
system rules or regulations, and the applicable laws of any other country or
jurisdiction where Awards are granted, as such laws, rules, regulations and
requirements shall be in place from time to time.

     "AWARD" means any award made pursuant to the Plan, including awards made in
the form of an Option, an SAR, a Restricted Share, a Restricted Share Unit, an
Unrestricted Share, a Deferred Share Unit, and a Performance Award, or any
combination thereof, whether alternative or cumulative, authorized by and
granted under this Plan.

     "AWARD AGREEMENT" means any written document setting forth the terms of an
Award that has been authorized by the Committee. The Committee shall determine
the form or forms of documents to be used, and may change them from time to time
for any reason.

     "BOARD" means the Board of Directors of the Company.

     "CAUSE" for termination of a Participant's Continuous Service will exist if
the Participant is terminated from employment or other service with the Company
or an Affiliate for any of the following reasons: (i) the Participant's willful
failure to substantially perform his or her duties and responsibilities to the
Company or deliberate violation of a material Company policy; (ii) the
Participant's commission of any material act or acts of fraud, embezzlement,
dishonesty, or other willful misconduct; (iii) the Participant's material
unauthorized use or disclosure of any proprietary information or trade secrets
of the Company or any other party to whom the Participant owes an obligation of
nondisclosure as a result of his or her relationship with the Company; or (iv)
Participant's willful and material breach of any of his or her obligations under
any written agreement or covenant with the Company.

     The Committee shall in its discretion determine whether or not a
Participant is being terminated for Cause. The Committee's determination shall,
unless arbitrary and capricious, be final and binding on the Participant, the
Company, and all other affected persons. The foregoing definition does not in
any way limit the Company's ability to terminate a Participant's employment or
consulting relationship at any time, and the term "Company" will be interpreted
herein to include any Affiliate or successor thereto, if appropriate.

     "CHANGE IN CONTROL" means any of the following:

          (i) Acquisition of Controlling Interest. Any Person becomes the
     Beneficial Owner, directly or indirectly, of securities of the Company
     representing 50% or more of the combined voting power of the Company's then
     outstanding securities. In applying the preceding sentence, (i) securities
     acquired directly from the Company or its Affiliates by or for the Person
     shall not be taken into account, and (ii) an agreement to vote securities
     shall be



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 19


     disregarded unless its ultimate purpose is to cause what would otherwise be
     a Change in Control, as reasonably determined by the Board.

          (ii) Change in Board Control. During a consecutive 2-year period
     commencing after the date of adoption of this Plan, individuals who
     constituted the Board at the beginning of the period (or their approved
     replacements, as defined in the next sentence) cease for any reason to
     constitute a majority of the Board. A new Director shall be considered an
     "approved replacement" Director if his or her election (or nomination for
     election) was approved by a vote of at least a majority of the Directors
     then still in office who either were Directors at the beginning of the
     period or were themselves approved replacement Directors, but in either
     case excluding any Director whose initial assumption of office occurred as
     a result of an actual or threatened solicitation of proxies or consents by
     or on behalf of any Person other than the Board.

          (iii) Merger. The Company consummates a merger, or consolidation of
     the Company with any other corporation unless: (a) the voting securities of
     the Company outstanding immediately before the merger or consolidation
     would continue to represent (either by remaining outstanding or by being
     converted into voting securities of the surviving entity) at least 50% of
     the combined voting power of the voting securities of the Company or such
     surviving entity outstanding immediately after such merger or
     consolidation; and (b) no Person becomes the Beneficial Owner, directly or
     indirectly, of securities of the Company representing 50% or more of the
     combined voting power of the Company's then outstanding securities.

          (iv) Sale of Assets. The stockholders of the Company approve an
     agreement for the sale or disposition by the Company of all, or
     substantially all, of the Company's assets.

          (v) Liquidation or Dissolution. The stockholders of the Company
     approve a plan or proposal for liquidation or dissolution of the Company.

     Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.

     "CODE" means the U.S. Internal Revenue Code of 1986, as amended.

     "COMMITTEE" means one or more committees or subcommittees of the Board
appointed by the Board to administer the Plan in accordance with Section 4
above. With respect to any decision involving an Award intended to satisfy the
requirements of Section 162(m) of the Code, the Committee shall consist of two
or more Directors of the Company who are "outside directors" within the meaning
of Section 162(m) of the Code. With respect to any decision relating to a
Reporting Person, the Committee shall consist of two or more Directors who are
disinterested within the meaning of Rule 16b-3.

     "COMPANY" means Commerce Energy Group, Inc., a Delaware corporation;
provided, however, that in the event the Company reincorporates to another
jurisdiction, all references to the term "Company" shall refer to the Company in
such new jurisdiction.

     "CONSULTANT" means any person, including an advisor, who is engaged by the
Company or any Affiliate to render services and is compensated for such
services.

     "CONTINUOUS SERVICE" means the absence of any interruption or termination
of service as an Employee, Director, or Consultant. Continuous Service shall not
be considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Committee, provided that such
leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; (iv)
changes in status from Director to advisory director or emeritus status; or (v)
in the case of transfers between locations of the Company or



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 20


between the Company, its Affiliates or their respective successors. Changes in
status between service as an Employee, Director, and a Consultant will not
constitute an interruption of Continuous Service.

     "DEFERRED SHARE UNITS" mean Awards pursuant to Section 9 of the Plan.

     "DIRECTOR" means a member of the Board, or a member of the board of
directors of an Affiliate.

     "DISABLED" means a condition under which a Participant --

          (a) is unable to engage in any substantial gainful activity by reason
     of any medically determinable physical or mental impairment which can be
     expected to result in death or can be expected to last for a continuous
     period of not less than 12 months, or

          (b) is, by reason of any medically determinable physical or mental
     impairment which can be expected to result in death or can be expected to
     last for a continuous period of not less than 12 months, received income
     replacement benefits for a period of not less than 3 months under an
     accident or health plan covering employees of the Company.

     "ELIGIBLE PERSON" means any Consultant, Director or Employee and includes
non-Employees to whom an offer of employment has been extended.

     "EMPLOYEE" means any person whom the Company or any Affiliate classifies as
an employee (including an officer) for employment tax purposes, whether or not
that classification is correct. The payment by the Company of a director's fee
to a Director shall not be sufficient to constitute "employment" of such
Director by the Company.

     "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

     "FAIR MARKET VALUE" means, as of any date (the "Determination Date") means:
(i) the closing price of a Share on the New York Stock Exchange or the American
Stock Exchange (collectively, the "Exchange"), on the Determination Date, or, if
shares were not traded on the Determination Date, then on the nearest preceding
trading day during which a sale occurred; or (ii) if such stock is not traded on
the Exchange but is quoted on NASDAQ or a successor quotation system, (A) the
last sales price (if the stock is then listed as a National Market Issue under
The Nasdaq National Market System) or (B) the mean between the closing
representative bid and asked prices (in all other cases) for the stock on the
Determination Date as reported by NASDAQ or such successor quotation system; or
(iii) if such stock is not traded on the Exchange or quoted on NASDAQ but is
otherwise traded in the over-the-counter, the mean between the representative
bid and asked prices on the Determination Date; or (iv) if subsections (i)-(iii)
do not apply, the fair market value established in good faith by the Board.

     "GRANT DATE" has the meaning set forth in Section 14 of the Plan.

     "INCENTIVE SHARE OPTION OR ISO" hereinafter means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable Award Agreement.

     "INVOLUNTARY TERMINATION" means termination of a Participant's Continuous
Service under the following circumstances occurring on or after a Change in
Control: (i) termination without Cause by the Company or an Affiliate or
successor thereto, as appropriate; or (ii) voluntary termination by the
Participant within 60 days following (A) a material reduction in the
Participant's job responsibilities, provided that neither a mere change in title
alone nor reassignment to a substantially similar position shall constitute a
material reduction in job responsibilities; (B) an involuntary relocation of the
Participant's work site to a facility or location more than 50 miles from the
Participant's principal work site at the time of the Change in Control; or (C) a
material reduction in Participant's total compensation other than as part of an
reduction by the same percentage amount in the compensation of all other
similarly-situated Employees, Directors or Consultants.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 21


     "NON-ISO" means an Option not intended to qualify as an ISO, as designated
in the applicable Award Agreement.

     "OPTION" means any stock option granted pursuant to Section 6 of the Plan.

     "PARTICIPANT" means any holder of one or more Awards, or the Shares
issuable or issued upon exercise of such Awards, under the Plan.

     "PERFORMANCE AWARDS" mean Performance Units and Performance Compensation
Awards granted pursuant to Section 10.

     "PERFORMANCE COMPENSATION AWARDS" mean Awards granted pursuant to Section
10(b) of the Plan.

     "PERFORMANCE UNIT" means Awards granted pursuant to Section 10(a) of the
Plan which may be paid in cash, in Shares, or such combination of cash and
Shares as the Committee in its sole discretion shall determine.

     "PERSON" means any natural person, association, trust, business trust,
cooperative, corporation, general partnership, joint venture, joint-stock
company, limited partnership, limited liability company, real estate investment
trust, regulatory body, governmental agency or instrumentality, unincorporated
organization or organizational entity.

     "PLAN" means this Commerce Energy Group, Inc. 2006 Stock Incentive Plan.

     "REPORTING PERSON" means an officer, Director, or greater than ten percent
shareholder of the Company within the meaning of Rule 16a-2 under the Exchange
Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange
Act.

     "RESTRICTED SHARES" mean Shares subject to restrictions imposed pursuant to
Section 8 of the Plan.

     "RESTRICTED SHARE UNITS" mean Awards pursuant to Section 8 of the Plan.

     "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act, as
amended from time to time, or any successor provision.

     "SAR" OR "SHARE APPRECIATION RIGHT" means Awards granted pursuant to
Section 7 of the Plan.

     "SHARE" means a share of common stock of the Company, par value $0.001, as
adjusted in accordance with Section 13 of the Plan.

     "TEN PERCENT HOLDER" means a person who owns stock representing more than
ten percent (10%) of the combined voting power of all classes of stock of the
Company or any Affiliate.

     "UNRESTRICTED SHARES" mean Shares awarded pursuant to Section 8 of the
Plan.


                                                                       EXHIBIT B

MEMORANDUM

                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                  COMMON STOCK
                               ($0.001 PAR VALUE)

          This Memorandum relates to shares of common stock, $0.001 par value
per share (the "Common Stock"), of Commerce Energy Group, Inc., a Delaware
corporation (the "Company"), issuable in satisfaction of awards made under
Commerce Energy Group, Inc.'s 2006 Stock Incentive Plan (the "Plan") to eligible
employees, consultants and directors of the Company. Stock options, share
appreciation rights, restricted shares, restricted share units, unrestricted
shares, deferred share units, performance shares and performance units may be
awarded under the Plan.

                                   ----------

                   The date of this Memorandum is May 8, 2006.

                                   ----------

  THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE
    BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS MEMORANDUM AND THE
   DOCUMENTS INCORPORATED BY REFERENCE IN THIS MEMORANDUM CONSTITUTE A SECTION
                   10(A) PROSPECTUS UNDER THE SECURITIES ACT.

                           COMMERCE ENERGY GROUP, INC.
                           600 Anton Blvd., Suite 200
                          Costa Mesa, California 92626



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 2


          This Memorandum does not constitute an offer to sell or a solicitation
of an offer to buy any securities other than the registered securities to which
it relates or an offer to sell or a solicitation of an offer to buy any
securities in any jurisdiction to any person to whom it is unlawful to make such
an offer or solicitation.

          Neither delivery of this Memorandum nor any sale made thereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company or in any information included therein, in
any supplement thereto or in any document incorporated by reference since the
date hereof or thereof.

                                     GENERAL

          This Memorandum relates to shares of common stock, $0.001 par value
per share (the "Common Stock"), of Commerce Energy Group, Inc., a Delaware
corporation (the "Company"), issuable in satisfaction of awards under the
Company's 2006 Stock Incentive Plan (the "Plan") to eligible employees,
consultants and directors of the Company. Stock options, share appreciation
rights, restricted shares, restricted share units, unrestricted shares, deferred
share units, performance shares and performance units may be awarded under the
Plan, though only employees may receive stock options classified as incentive
stock options ("ISOs") which are intended to satisfy the requirements of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). Options
awarded under the Plan may be either ISOs or non-qualified stock options
("non-ISOs") which are not intended to qualify as ISOs. Share appreciation
rights may be granted in tandem with options or as free-standing awards.
Options, share appreciation rights, restricted shares, restricted share units,
unrestricted shares, deferred shares, and performance awards vest in accordance
with the terms established by the committee administering the Plan, which may
include conditions relating to completion of a specified period of service or
achievement of performance standards.

          Any person deemed to be an "affiliate" of the Company may re-offer or
resell shares of Common Stock acquired pursuant to the Plan without registration
under the Securities Act of 1933, as amended (the "Act"), upon compliance with
Rule 144 under the Act. Participants who are not "affiliates" of the Company may
resell the shares of Common Stock acquired pursuant to the Plan without the need
to comply with Rule 144. For purposes of Rule 144, an "affiliate" of an issuer
is a person that directly or indirectly, through the use of one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer. Acquisitions of shares, exercises of options or other transactions
involving shares of Common Stock pursuant to the Plan by our directors,
executive officers or a 10% stockholder could be subject to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act").

          The Plan became effective as of January 26, 2006, the date that it was
approved by the Company's Stockholders. As currently operating, the Plan is not
qualified under Section 401(a) of the Code and is not subject to the provisions
of the Employee Retirement Income Security Act of 1974. The complete text of the
Plan appears below under the caption "2006 Stock Incentive Plan."

                            2006 STOCK INCENTIVE PLAN

1. ESTABLISHMENT, PURPOSE, AND TYPES OF AWARDS

    Commerce Energy Group, Inc. (the "Company") hereby establishes this
equity-based incentive compensation plan to be known as the "Commerce Energy
Group, Inc. 2006 Stock Incentive Plan"



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 3


(hereinafter referred to as the "Plan"), in order to provide incentives and
awards to select employees, directors, consultants, and advisors of the Company
and its Affiliates.

     The Plan permits the granting of the following types of awards ("Awards"),
according to the Sections of the Plan listed here:

     Section 6    Options
     Section 7    Share Appreciation Rights
     Section 8    Restricted Shares, Restricted Share Units, and Unrestricted
                  Shares
     Section 9    Deferred Share Units
     Section 10   Performance Awards

     The Plan is not intended to affect and shall not affect any stock options,
equity-based compensation, or other benefits that the Company or its Affiliates
may have provided, or may separately provide in the future pursuant to any
agreement, plan, or program that is independent of this Plan.

2. DEFINED TERMS

     Terms in the Plan that begin with an initial capital letter have the
defined meaning set forth in APPENDIX A, unless defined elsewhere in this Plan
or the context of their use clearly indicates a different meaning.

3. SHARES SUBJECT TO THE PLAN

     Subject to the provisions of Section 13 of the Plan, the maximum number of
Shares that the Company may issue for all Awards is 1,453,334 Shares, provided
that the Company shall not make additional awards under the Commonwealth Energy
Corporation 1999 Equity Incentive Plan, as amended and assumed by Commerce
Energy Group, Inc. For all Awards, the Shares issued pursuant to the Plan may be
authorized but unissued Shares, or Shares that the Company has reacquired or
otherwise holds in treasury.

     Shares that are subject to an Award that for any reason expires, is
forfeited, is cancelled, or becomes unexercisable, and Shares that are for any
other reason not paid or delivered under the Plan shall again, except to the
extent prohibited by Applicable Law, be available for subsequent Awards under
the Plan. In addition, the Committee may make future Awards with respect to
Shares that the Company retains from otherwise delivering pursuant to an Award
either (i) as payment of the exercise price of an Award, or (ii) in order to
satisfy the withholding or employment taxes due upon the grant, exercise,
vesting or distribution of an Award. Notwithstanding the foregoing, but subject
to adjustments pursuant to Section 13 below, the number of Shares that are
available for ISO Awards shall be determined, to the extent required under
applicable tax laws, by reducing the number of Shares designated in the
preceding paragraph by the number of Shares granted pursuant to Awards (whether
or not Shares are issued pursuant to such Awards), provided that any Shares that
are either issued or purchased under the Plan and forfeited back to the Plan, or
surrendered in payment of the Exercise Price for an Award shall be available for
issuance pursuant to future ISO Awards.

4. ADMINISTRATION

     (a) General. The Committee shall administer the Plan in accordance with its
terms, provided that the Board may act in lieu of the Committee on any matter.
The Committee shall hold meetings at such times and places as it may determine
and shall make such rules and regulations for the conduct of its business as



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 4


it deems advisable. In the absence of a duly appointed Committee or if the Board
otherwise chooses to act in lieu of the Committee, the Board shall function as
the Committee for all purposes of the Plan.

     (b) Committee Composition. The Board shall appoint the members of the
Committee. If and to the extent permitted by Applicable Law, the Committee may
authorize one or more Reporting Persons (or other officers) to make Awards to
Eligible Persons who are not Reporting Persons (or other officers whom the
Committee has specifically authorized to make Awards). The Board may at any time
appoint additional members to the Committee, remove and replace members of the
Committee with or without Cause, and fill vacancies on the Committee however
caused.

     (c) Powers of the Committee. Subject to the provisions of the Plan, the
Committee shall have the authority, in its sole discretion:

          (i) to determine Eligible Persons to whom Awards shall be granted from
     time to time and the number of Shares, units, or SARs to be covered by each
     Award;

          (ii) to determine, from time to time, the Fair Market Value of Shares;

          (iii) to determine, and to set forth in Award Agreements, the terms
     and conditions of all Awards, including any applicable exercise or purchase
     price, the installments and conditions under which an Award shall become
     vested (which may be based on performance), terminated, expired, cancelled,
     or replaced, and the circumstances for vesting acceleration or waiver of
     forfeiture restrictions, and other restrictions and limitations;

          (iv) to approve the forms of Award Agreements and all other documents,
     notices and certificates in connection therewith which need not be
     identical either as to type of Award or among Participants;

          (v) to construe and interpret the terms of the Plan and any Award
     Agreement, to determine the meaning of their terms, and to prescribe,
     amend, and rescind rules and procedures relating to the Plan and its
     administration; and

          (vi) in order to fulfill the purposes of the Plan and without amending
     the Plan, modify, cancel, or waive the Company's rights with respect to any
     Awards, to adjust or to modify Award Agreements for changes in Applicable
     Law, and to recognize differences in foreign law, tax policies, or customs;
     and

          (vii) to make all other interpretations and to take all other actions
     that the Committee may consider necessary or advisable to administer the
     Plan or to effectuate its purposes.

     Subject to Applicable Law and the restrictions set forth in the Plan, the
Committee may delegate administrative functions to individuals who are Reporting
Persons, officers, or Employees of the Company or its Affiliates.

     (d) Deference to Committee Determinations. The Committee shall have the
discretion to interpret or construe ambiguous, unclear, or implied (but omitted)
terms in any fashion it deems to be appropriate in its sole discretion, and to
make any findings of fact needed in the administration of the Plan or Award
Agreements. The Committee's prior exercise of its discretionary authority shall
not obligate it to exercise its authority in a like fashion thereafter. The
Committee's interpretation and construction of any provision of the Plan, or of
any Award or Award Agreement, shall be final, binding, and conclusive. The
validity of any such interpretation, construction, decision or finding of fact
shall not be given de novo review if



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 5


challenged in court, by arbitration, or in any other forum, and shall be upheld
unless clearly made in bad faith or materially affected by fraud.

     (e) No Liability; Indemnification. Neither the Board nor any Committee
member, nor any Person acting at the direction of the Board or the Committee,
shall be liable for any act, omission, interpretation, construction or
determination made in good faith with respect to the Plan, any Award or any
Award Agreement. The Company and its Affiliates shall pay or reimburse any
member of the Committee, as well as any Director, Employee, or Consultant who
takes action in connection with the Plan, for all expenses incurred with respect
to the Plan, and to the full extent allowable under Applicable Law shall
indemnify each and every one of them for any claims, liabilities, and costs
(including reasonable attorney's fees) arising out of their good faith
performance of duties under the Plan. The Company and its Affiliates may obtain
liability insurance for this purpose.

5. ELIGIBILITY

     (a) General Rule. The Committee may grant ISOs only to Employees (including
officers who are Employees) of the Company or an Affiliate that is a "parent
corporation" or "subsidiary corporation" within the meaning of Section 424 of
the Code, and may grant all other Awards to any Eligible Person. A Participant
who has been granted an Award may be granted an additional Award or Awards if
the Committee shall so determine, if such person is otherwise an Eligible Person
and if otherwise in accordance with the terms of the Plan.

     (b) Grant of Awards. Subject to the express provisions of the Plan, the
Committee shall determine from the class of Eligible Persons those individuals
to whom Awards under the Plan may be granted, the number of Shares subject to
each Award, the price (if any) to be paid for the Shares or the Award and, in
the case of Performance Awards, in addition to the matters addressed in Section
10 below, the specific objectives, goals and performance criteria that further
define the Performance Award. Each Award shall be evidenced by an Award
Agreement signed by the Company and, if required by the Committee, by the
Participant. The Award Agreement shall set forth the material terms and
conditions of the Award established by the Committee, and each Award shall be
subject to the terms and conditions set forth in Sections 23, 24, and 25 unless
otherwise specifically provided in an Award Agreement.

     (c) Limits on Awards. During any calendar year, no Participant may receive
Options and SARs that relate to more than 1,000,000 Shares. The Committee will
adjust this limitation pursuant to Section 13 below.

     (d) Replacement Awards. Subject to Applicable Laws (including any
associated Shareholder approval requirements), the Committee may, in its sole
discretion and upon such terms as it deems appropriate, require as a condition
of the grant of an Award to a Participant that the Participant surrender for
cancellation some or all of the Awards that have previously been granted to the
Participant under this Plan or otherwise. An Award that is conditioned upon such
surrender may or may not be the same type of Award, may cover the same (or a
lesser or greater) number of Shares as such surrendered Award, may have other
terms that are determined without regard to the terms or conditions of such
surrendered Award, and may contain any other terms that the Committee deems
appropriate. In the case of Options, these other terms may not involve an
Exercise Price that is lower than the Exercise Price of the surrendered Option
unless the Company's shareholders approve the grant itself or the program under
which the grant is made pursuant to the Plan.



Commerce Energy Group, Inc.
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6. OPTION AWARDS

     (a) Types; Documentation. The Committee may in its discretion grant ISOs to
any Employee and Non-ISOs to any Eligible Person, and shall evidence any such
grants in an Award Agreement that is delivered to the Participant. Each Option
shall be designated in the Award Agreement as an ISO or a Non-ISO, and the same
Award Agreement may grant both types of Options. At the sole discretion of the
Committee, any Option may be exercisable, in whole or in part, immediately upon
the grant thereof, or only after the occurrence of a specified event, or only in
installments, which installments may vary. Options granted under the Plan may
contain such terms and provisions not inconsistent with the Plan that the
Committee shall deem advisable in its sole and absolute discretion.

     (b) ISO $100,000 Limitation. To the extent that the aggregate Fair Market
Value of Shares with respect to which Options designated as ISOs first become
exercisable by a Participant in any calendar year (under this Plan and any other
plan of the Company or any Affiliate) exceeds $100,000, such excess Options
shall be treated as Non-ISOs. For purposes of determining whether the $100,000
limit is exceeded, the Fair Market Value of the Shares subject to an ISO shall
be determined as of the Grant Date. In reducing the number of Options treated as
ISOs to meet the $100,000 limit, the most recently granted Options shall be
reduced first. In the event that Section 422 of the Code is amended to alter the
limitation set forth therein, the limitation of this Section 6(b) shall be
automatically adjusted accordingly.

     (c) Term of Options. Each Award Agreement shall specify a term at the end
of which the Option automatically expires, subject to earlier termination
provisions contained in Section 6(h) hereof; provided, that, the term of any
Option may not exceed ten years from the Grant Date. In the case of an ISO
granted to an Employee who is a Ten Percent Holder on the Grant Date, the term
of the ISO shall not exceed five years from the Grant Date.

     (d) Exercise Price. The exercise price of an Option shall be determined by
the Committee in its sole discretion and shall be set forth in the Award
Agreement, provided that (i) if an ISO is granted to an Employee who on the
Grant Date is a Ten Percent Holder, the per Share exercise price shall not be
less than 110% of the Fair Market Value per Share on the Grant Date, and (ii)
for all other Options, such per Share exercise price shall not be less than 100%
of the Fair Market Value per Share on the Grant Date. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of the federal securities laws applicable to proxy statement
disclosures.

     (e) Exercise of Option. The times, circumstances and conditions under which
an Option shall be exercisable shall be determined by the Committee in its sole
discretion and set forth in the Award Agreement. The Committee shall have the
discretion to determine whether and to what extent the vesting of Options shall
be tolled during any unpaid leave of absence; provided, however, that in the
absence of such determination, vesting of Options shall be tolled during any
such leave approved by the Company.

     (f) Minimum Exercise Requirements. An Option may not be exercised for a
fraction of a Share. The Committee may require in an Award Agreement that an
Option be exercised as to a minimum number of Shares, provided that such
requirement shall not prevent a Participant from purchasing the full number of
Shares as to which the Option is then exercisable.

     (g) Methods of Exercise. Prior to its expiration pursuant to the terms of
the applicable Award Agreement, and subject to the times, circumstances and
conditions for exercise contained in the applicable Award Agreement, each Option
may be exercised, in whole or in part (provided that the Company shall not be
required to issue fractional shares), by delivery of written notice of exercise
to the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 7


secretary of the Company accompanied by the full exercise price of the Shares
being purchased. In the case of an ISO, the Committee shall determine the
acceptable methods of payment on the Grant Date and it shall be included in the
applicable Award Agreement. The methods of payment that the Committee may in its
discretion accept or commit to accept in an Award Agreement include:

          (i) cash or check payable to the Company (in U.S. dollars);

          (ii) other Shares that (A) are owned by the Participant who is
     purchasing Shares pursuant to an Option, (B) have a Fair Market Value on
     the date of surrender equal to the aggregate exercise price of the Shares
     as to which the Option is being exercised, (C) were not acquired by such
     Participant pursuant to the exercise of an Option, unless such Shares have
     been owned by such Participant for at least six months or such other period
     as the Committee may determine, (D) are all, at the time of such surrender,
     free and clear of any and all claims, pledges, liens and encumbrances, or
     any restrictions which would in any manner restrict the transfer of such
     shares to or by the Company (other than such restrictions as may have
     existed prior to an issuance of such Shares by the Company to such
     Participant), and (E) are duly endorsed for transfer to the Company;

          (iii) a cashless exercise program that the Committee may approve, from
     time to time in its discretion, pursuant to which a Participant may
     concurrently provide irrevocable instructions (A) to such Participant's
     broker or dealer to effect the immediate sale of the purchased Shares and
     remit to the Company, out of the sale proceeds available on the settlement
     date, sufficient funds to cover the exercise price of the Option plus all
     applicable taxes required to be withheld by the Company by reason of such
     exercise, and (B) to the Company to deliver the certificates for the
     purchased Shares directly to such broker or dealer in order to complete the
     sale; or

          (iv) any combination of the foregoing methods of payment.

     The Company shall not be required to deliver Shares pursuant to the
exercise of an Option until payment of the full exercise price therefore is
received by the Company.

     (h) Termination of Continuous Service. The Committee may establish and set
forth in the applicable Award Agreement the terms and conditions on which an
Option shall remain exercisable, if at all, following termination of a
Participant's Continuous Service. The Committee may waive or modify these
provisions at any time. To the extent that a Participant is not entitled to
exercise an Option at the date of his or her termination of Continuous Service,
or if the Participant (or other person entitled to exercise the Option) does not
exercise the Option to the extent so entitled within the time specified in the
Award Agreement or below (as applicable), the Option shall terminate and the
Shares underlying the unexercised portion of the Option shall revert to the Plan
and become available for future Awards. In no event may any Option be exercised
after the expiration of the Option term as set forth in the Award Agreement.

     The following provisions shall apply to the extent an Award Agreement does
not specify the terms and conditions upon which an Option shall terminate when
there is a termination of a Participant's Continuous Service:

          (i) Termination other than Upon Disability or Death or for Cause. In
     the event of termination of a Participant's Continuous Service (other than
     as a result of Participant's death, disability, retirement or termination
     for Cause), the Participant shall have the right to exercise an Option at
     any time within 90 days following such termination to the extent the
     Participant was entitled to exercise such Option at the date of such
     termination.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 8


          (ii) Disability. In the event of termination of a Participant's
     Continuous Service as a result of his or her being Disabled, the
     Participant shall have the right to exercise an Option at any time within
     one year following such termination to the extent the Participant was
     entitled to exercise such Option at the date of such termination.

          (iii) Retirement. In the event of termination of a Participant's
     Continuous Service as a result of Participant's retirement, the Participant
     shall have the right to exercise the Option at any time within six months
     following such termination to the extent the Participant was entitled to
     exercise such Option at the date of such termination.

          (iv) Death. In the event of the death of a Participant during the
     period of Continuous Service since the Grant Date of an Option, or within
     thirty days following termination of the Participant's Continuous Service,
     the Option may be exercised, at any time within one year following the date
     of the Participant's death, by the Participant's estate or by a person who
     acquired the right to exercise the Option by bequest or inheritance, but
     only to the extent the right to exercise the Option had vested at the date
     of death or, if earlier, the date the Participant's Continuous Service
     terminated.

          (v) Cause. If the Committee determines that a Participant's Continuous
     Service terminated due to Cause, the Participant shall immediately forfeit
     the right to exercise any Option, and it shall be considered immediately
     null and void.

     (i) Reverse Vesting. The Committee in its sole discretion may allow a
Participant to exercise unvested Options, in which case the Shares then issued
shall be Restricted Shares having analogous vesting restrictions to the unvested
Options.

     (j) Buyout Provisions. The Committee may at any time offer to buy out an
Option, in exchange for a payment in cash or Shares, based on such terms and
conditions as the Committee shall establish and communicate to the Participant
at the time that such offer is made.

7. SHARE APPRECIATE RIGHTS (SARS)

     (a) Grants. The Committee may in its discretion grant Share Appreciation
Rights to any Eligible Person, in any of the following forms:

          (i) SARs related to Options. The Committee may grant SARs either
     concurrently with the grant of an Option or with respect to an outstanding
     Option, in which case the SAR shall extend to all or a portion of the
     Shares covered by the related Option. An SAR shall entitle the Participant
     who holds the related Option, upon exercise of the SAR and surrender of the
     related Option, or portion thereof, to the extent the SAR and related
     Option each were previously unexercised, to receive payment of an amount
     determined pursuant to Section 7(e) below. Any SAR granted in connection
     with an ISO will contain such terms as may be required to comply with the
     provisions of Section 422 of the Code and the regulations promulgated
     thereunder.

          (ii) SARs Independent of Options. The Committee may grant SARs which
     are independent of any Option subject to such conditions as the Committee
     may in its discretion determine, which conditions will be set forth in the
     applicable Award Agreement.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 9


          (iii) Limited SARs. The Committee may grant SARs exercisable only upon
     or in respect of a Change in Control or any other specified event, and such
     limited SARs may relate to or operate in tandem or combination with or
     substitution for Options or other SARs, or on a stand-alone basis, and may
     be payable in cash or Shares based on the spread between the exercise price
     of the SAR, and (A) a price based upon or equal to the Fair Market Value of
     the Shares during a specified period, at a specified time within a
     specified period before, after or including the date of such event, or (B)
     a price related to consideration payable to Company's shareholders
     generally in connection with the event.

     (b) Exercise Price. The per Share exercise price of an SAR shall be
determined in the sole discretion of the Committee, shall be set forth in the
applicable Award Agreement, and shall be no less than 100% of the Fair Market
Value of one Share. The exercise price of an SAR related to an Option shall be
the same as the exercise price of the related Option. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of federal securities laws applicable to proxy statement
disclosures.

     (c) Exercise of SARs. Unless the Award Agreement otherwise provides, an SAR
related to an Option will be exercisable at such time or times, and to the
extent, that the related Option will be exercisable; provided that the Award
Agreement shall not, without the approval of the shareholders of the Company,
provide for a vesting period for the exercise of the SAR that is more favorable
to the Participant than the exercise period for the related Option. An SAR may
not have a term exceeding ten years from its Grant Date. An SAR granted
independently of any other Award will be exercisable pursuant to the terms of
the Award Agreement, but shall not, without the approval of the shareholders of
the Company, provide for a vesting period for the exercise of the SAR that is
more favorable to the Participant than the exercise period for the related
Option. Whether an SAR is related to an Option or is granted independently, the
SAR may only be exercised when the Fair Market Value of the Shares underlying
the SAR exceeds the exercise price of the SAR.

     (d) Effect on Available Shares. All SARs that may be settled in shares of
the Company's stock shall be counted in full against the number of shares
available for award under the Plan, regardless of the number of shares actually
issued upon settlement of the SARs.

     (e) Payment. Upon exercise of an SAR related to an Option and the attendant
surrender of an exercisable portion of any related Award, the Participant will
be entitled to receive payment of an amount determined by multiplying --

          (i) the excess of the Fair Market Value of a Share on the date of
     exercise of the SAR over the exercise price per Share of the SAR, by

          (ii) the number of Shares with respect to which the SAR has been
     exercised.

     Notwithstanding the foregoing, an SAR granted independently of an Option
(i) may limit the amount payable to the Participant to a percentage, specified
in the Award Agreement but not exceeding one-hundred percent (100%), of the
amount determined pursuant to the preceding sentence, and (ii) shall be subject
to any payment or other restrictions that the Committee may at any time impose
in its discretion, including restrictions intended to conform the SARs with
Section 409A of the Code.

     (f) Form and Terms of Payment. Subject to Applicable Law, the Committee
may, in its sole discretion, settle the amount determined under Section 7(e)
above solely in cash, solely in Shares (valued at their Fair Market Value on the
date of exercise of the SAR), or partly in cash and partly in Shares, with



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 10


cash paid in lieu of fractional shares. Unless otherwise provided in an Award
Agreement, all SARs shall be settled in Shares as soon as practicable after
exercise.

     (g) Termination of Employment or Consulting Relationship. The Committee
shall establish and set forth in the applicable Award Agreement the terms and
conditions on which an SAR shall remain exercisable, if at all, following
termination of a Participant's Continuous Service. The provisions of Section
6(h) above shall apply to the extent an Award Agreement does not specify the
terms and conditions upon which an SAR shall terminate when there is a
termination of a Participant's Continuous Service.

     (h) Buy out. The Committee has the same discretion to buy out SARs as it
has to take such actions pursuant to Section 6(j) above with respect to Options.

8. RESTRICTED SHARES, RESTRICTED SHARE UNITS, AND UNRESTRICTED SHARES

     (a) Grants. The Committee may in its sole discretion grant restricted
shares ("Restricted Shares") to any Eligible Person and shall evidence such
grant in an Award Agreement that is delivered to the Participant and that sets
forth the number of Restricted Shares, the purchase price for such Restricted
Shares (if any), and the terms upon which the Restricted Shares may become
vested. In addition, the Company may in its discretion grant the right to
receive Shares after certain vesting requirements are met ("Restricted Share
Units") to any Eligible Person and shall evidence such grant in an Award
Agreement that is delivered to the Participant which sets forth the number of
Shares (or formula, that may be based on future performance or conditions, for
determining the number of Shares) that the Participant shall be entitled to
receive upon vesting and the terms upon which the Shares subject to a Restricted
Share Unit may become vested. The Committee may condition any Award of
Restricted Shares or Restricted Share Units to a Participant on receiving from
the Participant such further assurances and documents as the Committee may
require to enforce the restrictions. In addition, the Committee may grant Awards
hereunder in the form of unrestricted shares ("Unrestricted Shares"), which
shall vest in full upon the date of grant or such other date as the Committee
may determine or which the Committee may issue pursuant to any program under
which one or more Eligible Persons (selected by the Committee in its sole
discretion) elect to receive Unrestricted Shares in lieu of cash bonuses that
would otherwise be paid.

     (b) Vesting and Forfeiture. The Committee shall set forth in an Award
Agreement granting Restricted Shares or Restricted Share Units, the terms and
conditions under which the Participant's interest in the Restricted Shares or
the Shares subject to Restricted Share Units will become vested and
non-forfeitable. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, upon termination of a Participant's Continuous
Service for any other reason, the Participant shall forfeit his or her
Restricted Shares and Restricted Share Units; provided that if a Participant
purchases the Restricted Shares and forfeits them for any reason, the Company
shall return the purchase price to the Participant only if and to the extent set
forth in an Award Agreement.

     (c) Issuance of Restricted Shares Prior to Vesting. The Company shall issue
stock certificates that evidence Restricted Shares pending the lapse of
applicable restrictions, and that bear a legend making appropriate reference to
such restrictions. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, the Company or a third party that the Company
designates shall hold such Restricted Shares and any dividends that accrue with
respect to Restricted Shares pursuant to Section 8(e) below.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 11


     (d) Issuance of Shares upon Vesting. As soon as practicable after vesting
of a Participant's Restricted Shares (or Shares underlying Restricted Share
Units) and the Participant's satisfaction of applicable tax withholding
requirements, the Company shall release to the Participant, free from the
vesting restrictions, one Share for each vested Restricted Share (or issue one
Share free of the vesting restriction for each vested Restricted Share Unit),
unless an Award Agreement provides otherwise. No fractional shares shall be
distributed, and cash shall be paid in lieu thereof.

     (e) Dividends Payable on Vesting. Whenever Shares are released to a
Participant or duly-authorized transferee pursuant to Section 8(d) above as a
result of the vesting of Restricted Shares or the Shares underlying Restricted
Share Units are issued to a Participant pursuant to Section 8(d) above, such
Participant or duly-authorized transferee shall also be entitled to receive
(unless otherwise provided in the Award Agreement), with respect to each Share
released or issued, an amount equal to any cash dividends (plus, in the sole
discretion of the Committee, simple interest at a rate as the Committee may
determine) and a number of Shares equal to any stock dividends, which were
declared and paid to the holders of Shares between the Grant Date and the date
such Share is released from the vesting restrictions in the case of Restricted
Shares or issued in the case of Restricted Share Units.

     (f) Section 83(b) Elections. A Participant may make an election under
Section 83(b) of the Code (the "Section 83(b) Election") with respect to
Restricted Shares. If a Participant who has received Restricted Share Units
provides the Committee with written notice of his or her intention to make a
Section 83(b) Election with respect to the Shares subject to such Restricted
Share Units, the Committee may in its discretion convert the Participant's
Restricted Share Units into Restricted Shares, on a one-for-one basis, in full
satisfaction of the Participant's Restricted Share Unit Award. The Participant
may then make a Section 83(b) Election with respect to those Restricted Shares.
Shares with respect to which a Participant makes a Section 83(b) Election shall
not be eligible for deferral pursuant to Section 9 below.

     (g) Deferral Elections. At any time within the thirty-day period (or other
shorter or longer period that the Committee selects in its sole discretion) in
which a Participant who is a member of a select group of management or highly
compensated employees (within the meaning of the Code) receives an Award of
either Restricted Shares or Restricted Share Units, the Committee may permit the
Participant to irrevocably elect, on a form provided by and acceptable to the
Committee, to defer the receipt of all or a percentage of the Shares that would
otherwise be transferred to the Participant upon the vesting of such Award. If
the Participant makes this election, the Shares subject to the election, and any
associated dividends and interest, shall be credited to an account established
pursuant to Section 9 hereof on the date such Shares would otherwise have been
released or issued to the Participant pursuant to Section 8(d) above.

9. DEFERRED SHARE UNITS

     (a) Elections to Defer. The Committee may permit any Eligible Person who is
a Director, Consultant or member of a select group of management or highly
compensated employees (within the meaning of the Code) to irrevocably elect, on
a form provided by and acceptable to the Committee (the "Election Form"), to
forego the receipt of cash or other compensation (including the Shares
deliverable pursuant to any Award other than Restricted Shares for which a
Section 83(b) Election has been made), and in lieu thereof to have the Company
credit to an internal Plan account (the "Account") a number of deferred share
units ("Deferred Share Units") having a Fair Market Value equal to the Shares
and other compensation deferred. These credits will be made at the end of each
calendar month during which compensation is deferred. Each Election Form shall
take effect on the first day of the next calendar year (or on the first day of
the next calendar month in the case of an initial election by a Participant who
first becomes eligible to



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 12


defer hereunder) after its delivery to the Company, subject to Section 8(g)
regarding deferral of Restricted Shares and Restricted Share Units and to
Section 10(e) regarding deferral of Performance Awards, unless the Company sends
the Participant a written notice explaining why the Election Form is invalid
within five business days after the Company receives it. Notwithstanding the
foregoing sentence: (i) Election Forms shall be ineffective with respect to any
compensation that a Participant earns before the date on which the Company
receives the Election Form, and (ii) the Committee may unilaterally make awards
in the form of Deferred Share Units, regardless of whether or not the
Participant foregoes other compensation.

     (b) Vesting. Unless an Award Agreement expressly provides otherwise, each
Participant shall be 100% vested at all times in any Shares subject to Deferred
Share Units.

     (c) Issuances of Shares. The Company shall provide a Participant with one
Share for each Deferred Share Unit in five substantially equal annual
installments that are issued before the last day of each of the five calendar
years that end after the date on which the Participant's Continuous Service
terminates, unless --

          (i) the Participant has properly elected a different form of
     distribution, on a form approved by the Committee, that permits the
     Participant to select any combination of a lump sum and annual installments
     that are completed within ten years following termination of the
     Participant's Continuous Service, and

          (ii) the Company received the Participant's distribution election form
     at the time the Participant elects to defer the receipt of cash or other
     compensation pursuant to Section 9(a), provided that such election may be
     changed through any subsequent election that (i) is delivered to the
     Company at least one year before the date on which distributions are
     otherwise scheduled to commence pursuant to the Participant's election, and
     (ii) defers the commencement of distributions by at least five years from
     the originally scheduled commencement date.

     Fractional shares shall not be issued, and instead shall be paid out in
cash.

     (d) Crediting of Dividends. Whenever Shares are issued to a Participant
pursuant to Section 9(c) above, such Participant shall also be entitled to
receive, with respect to each Share issued, a cash amount equal to any cash
dividends (plus simple interest at a rate of five percent per annum, or such
other reasonable rate as the Committee may determine), and a number of Shares
equal to any stock dividends which were declared and paid to the holders of
Shares between the Grant Date and the date such Share is issued.

     (e) Emergency Withdrawals. In the event a Participant suffers an
unforeseeable emergency within the contemplation of this Section and Section
409A of the Code, the Participant may apply to the Company for an immediate
distribution of all or a portion of the Participant's Deferred Share Units. The
unforeseeable emergency must result from a sudden and unexpected illness or
accident of the Participant, the Participant's spouse, or a dependent (within
the meaning of Section 152(a) of the Code) of the Participant, casualty loss of
the Participant's property, or other similar extraordinary and unforeseeable
conditions beyond the control of the Participant. Examples of purposes which are
not considered unforeseeable emergencies include post-secondary school expenses
or the desire to purchase a residence. In no event will a distribution be made
to the extent the unforeseeable emergency could be relieved through
reimbursement or compensation by insurance or otherwise, or by liquidation of
the Participant's nonessential assets to the extent such liquidation would not
itself cause a severe financial hardship. The



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 13


amount of any distribution hereunder shall be limited to the amount necessary to
relieve the Participant's unforeseeable emergency plus amounts necessary to pay
taxes reasonably anticipated as a result of the distribution. The Committee
shall determine whether a Participant has a qualifying unforeseeable emergency
and the amount which qualifies for distribution, if any. The Committee may
require evidence of the purpose and amount of the need, and may establish such
application or other procedures as it deems appropriate.

     (f) Unsecured Rights to Deferred Compensation. A Participant's right to
Deferred Share Units shall at all times constitute an unsecured promise of the
Company to pay benefits as they come due. The right of the Participant or the
Participant's duly-authorized transferee to receive benefits hereunder shall be
solely an unsecured claim against the general assets of the Company. Neither the
Participant nor the Participant's duly-authorized transferee shall have any
claim against or rights in any specific assets, shares, or other funds of the
Company.

10. PERFORMANCE AWARDS

     (a) Performance Units. Subject to the limitations set forth in paragraph
(c) hereof, the Committee may in its discretion grant Performance Units to any
Eligible Person and shall evidence such grant in an Award Agreement that is
delivered to the Participant which sets forth the terms and conditions of the
Award.

     (b) Performance Compensation Awards. Subject to the limitations set forth
in paragraph (c) hereof, the Committee may, at the time of grant of a
Performance Unit, designate such Award as a "Performance Compensation Award"
(payable in cash or Shares) in order that such Award constitutes "qualified
performance-based compensation" under Code Section 162(m), in which event the
Committee shall have the power to grant such Performance Compensation Award upon
terms and conditions that qualify it as "qualified performance-based
compensation" within the meaning of Code Section 162(m). With respect to each
such Performance Compensation Award, the Committee shall establish, in writing
within the time required under Code Section 162(m), a "Performance Period,"
"Performance Measure(s)", and "Performance Formula(e)" (each such term being
hereinafter defined). Once established for a Performance Period, the Performance
Measure(s) and Performance Formula(e) shall not be amended or otherwise modified
to the extent such amendment or modification would cause the compensation
payable pursuant to the Award to fail to constitute qualified performance-based
compensation under Code Section 162(m).

     A Participant shall be eligible to receive payment in respect of a
Performance Compensation Award only to the extent that the Performance
Measure(s) for such Award is achieved and the Performance Formula(e) as applied
against such Performance Measure(s) determines that all or some portion of such
Participant's Award has been earned for the Performance Period. As soon as
practicable after the close of each Performance Period, the Committee shall
review and certify in writing whether, and to what extent, the Performance
Measure(s) for the Performance Period have been achieved and, if so, determine
and certify in writing the amount of the Performance Compensation Award to be
paid to the Participant and, in so doing, may use negative discretion to
decrease, but not increase, the amount of the Award otherwise payable to the
Participant based upon such performance.

     (c) Limitations on Awards. The maximum Performance Unit Award and the
maximum Performance Compensation Award that any one Participant may receive for
any one Performance Period shall not together exceed 1,000,000 Shares and
$1,000,000 in cash. The Committee shall have the discretion to provide in any
Award Agreement that any amounts earned in excess of these limitations will
either be



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 14


credited as Deferred Share Units, or as deferred cash compensation under a
separate plan of the Company (provided in the latter case that such deferred
compensation either bears a reasonable rate of interest or has a value based on
one or more predetermined actual investments). Any amounts for which payment to
the Participant is deferred pursuant to the preceding sentence shall be paid to
the Participant in a future year or years not earlier than, and only to the
extent that, the Participant is either not receiving compensation in excess of
these limits for a Performance Period, or is not subject to the restrictions set
forth under Section 162(b) of the Code.

(d) Definitions.

          (i) "Performance Formula" means, for a Performance Period, one or more
     objective formulas or standards established by the Committee for purposes
     of determining whether or the extent to which an Award has been earned
     based on the level of performance attained or to be attained with respect
     to one or more Performance Measure(s). Performance Formulae may vary from
     Performance Period to Performance Period and from Participant to
     Participant and may be established on a stand-alone basis, in tandem or in
     the alternative.

          (ii) "Performance Measure" means one or more of the following selected
     by the Committee to measure Company, Affiliate, and/or business unit
     performance for a Performance Period, whether in absolute or relative terms
     (including, without limitation, terms relative to a peer group or index):
     basic, diluted, or adjusted earnings per share; sales or revenue; earnings
     before interest, taxes, and other adjustments (in total or on a per share
     basis); basic or adjusted net income; returns on equity, assets, capital,
     revenue or similar measure; economic value added; working capital; total
     shareholder return; and product development, product market share,
     research, licensing, litigation, human resources, information services,
     mergers, acquisitions, sales of assets of Affiliates or business units.
     Each such measure shall be, to the extent applicable, determined in
     accordance with generally accepted accounting principles as consistently
     applied by the Company (or such other standard applied by the Committee)
     and, if so determined by the Committee, and in the case of a Performance
     Compensation Award, to the extent permitted under Code Section 162(m),
     adjusted to omit the effects of extraordinary items, gain or loss on the
     disposal of a business segment, unusual or infrequently occurring events
     and transactions and cumulative effects of changes in accounting
     principles. Performance Measures may vary from Performance Period to
     Performance Period and from Participant to Participant, and may be
     established on a stand-alone basis, in tandem or in the alternative.

          (iii) "Performance Period" means one or more periods of time (of not
     less than one fiscal year of the Company), as the Committee may designate,
     over which the attainment of one or more Performance Measure(s) will be
     measured for the purpose of determining a Participant's rights in respect
     of an Award.

     (e) Deferral Elections. At any time prior to the date that is at least six
months before the close of a Performance Period (or shorter or longer period
that the Committee selects) with respect to an Award of either Performance Units
or Performance Compensation, the Committee may permit a Participant who is a
member of a select group of management or highly compensated employees (within
the meaning of the Code) to irrevocably elect, on a form provided by and
acceptable to the Committee, to defer the receipt of all or a percentage of the
cash or Shares that would otherwise be transferred to the Participant upon the
vesting of such Award. If the Participant makes this election, the cash or
Shares subject to the election, and any associated interest and dividends, shall
be credited to an account established pursuant to Section



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 15


9 hereof on the date such cash or Shares would otherwise have been released or
issued to the Participant pursuant to Section 10(a) or Section 10(b) above.

11. TAXES

     (a) General. As a condition to the issuance or distribution of Shares
pursuant to the Plan, the Participant (or in the case of the Participant's
death, the person who succeeds to the Participant's rights) shall make such
arrangements as the Company may require for the satisfaction of any applicable
federal, state, local or foreign withholding tax obligations that may arise in
connection with the Award and the issuance of Shares. The Company shall not be
required to issue any Shares until such obligations are satisfied. If the
Committee allows the withholding or surrender of Shares to satisfy a
Participant's tax withholding obligations, the Committee shall not allow Shares
to be withheld in an amount that exceeds the minimum statutory withholding rates
for federal and state tax purposes, including payroll taxes.

     (b) Default Rule for Employees. In the absence of any other arrangement, an
Employee shall be deemed to have directed the Company to withhold or collect
from his or her cash compensation an amount sufficient to satisfy such tax
obligations from the next payroll payment otherwise payable after the date of
the exercise of an Award.

     (c) Special Rules. In the case of a Participant other than an Employee (or
in the case of an Employee where the next payroll payment is not sufficient to
satisfy such tax obligations, with respect to any remaining tax obligations), in
the absence of any other arrangement and to the extent permitted under
Applicable Law, the Participant shall be deemed to have elected to have the
Company withhold from the Shares or cash to be issued pursuant to an Award that
number of Shares having a Fair Market Value determined as of the applicable Tax
Date (as defined below) or cash equal to the amount required to be withheld. For
purposes of this Section 11, the Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined under the Applicable Law (the "Tax Date").

     (d) Surrender of Shares. If permitted by the Committee, in its discretion,
a Participant may satisfy the minimum applicable tax withholding and employment
tax obligations associated with an Award by surrendering Shares to the Company
(including Shares that would otherwise be issued pursuant to the Award) that
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld. In the case of Shares previously acquired from
the Company that are surrendered under this Section 11, such Shares must have
been owned by the Participant for more than six months on the date of surrender
(or such longer period of time the Company may in its discretion require).

     (e) Income Taxes and Deferred Compensation. Participants are solely
responsible and liable for the satisfaction of all taxes and penalties that may
arise in connection with Awards (including any taxes arising under Section 409A
of the Code), and the Company shall not have any obligation to indemnify or
otherwise hold any Participant harmless from any or all of such taxes. The
Committee shall have the discretion to organize any deferral program, to require
deferral election forms, and to grant or to unilaterally modify any Award in a
manner that (i) conforms with the requirements of Section 409A of the Code with
respect to compensation that is deferred and that vests after December 31, 2004,
(ii) that voids any Participant election to the extent it would violate Section
409A of the Code, and (iii) for any distribution election that would violate
Section 409A of the Code, to make distributions pursuant to the Award at the
earliest to occur of a distribution event that is allowable under Section 409A
of the Code or any distribution event that is both allowable under Section 409A
of the Code and is elected by the Participant, subject to any valid second
election to defer, provided that the Committee permits second



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 16


elections to defer in accordance with Section 409A(a)(4)(C). The Committee shall
have the sole discretion to interpret the requirements of the Code, including
Section 409A, for purposes of the Plan and all Awards.

12. NON-TRANSFERABILITY OF AWARDS

     (a) General. Except as set forth in this Section 12, or as otherwise
approved by the Committee, Awards may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent or distribution. The designation of a beneficiary by a
Participant will not constitute a transfer. An Award may be exercised, during
the lifetime of the holder of an Award, only by such holder, the duly-authorized
legal representative of a Participant who is Disabled, or a transferee permitted
by this Section 12.

     (b) Limited Transferability Rights. Notwithstanding anything else in this
Section 12, the Committee may in its discretion provide in an Award Agreement
that an Award other than an ISO may be transferred, on such terms and conditions
as the Committee deems appropriate, either (i) by instrument to the
Participant's "Immediate Family" (as defined below), (ii) by instrument to an
inter vivos or testamentary trust (or other entity) in which the Award is to be
passed to the Participant's designated beneficiaries, or (iii) by gift to
charitable institutions. Any transferee of the Participant's rights shall
succeed and be subject to all of the terms of the applicable Award Agreement and
the Plan. "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, and shall include adoptive relationships.

13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER
TRANSACTIONS

     (a) Changes in Capitalization. The Committee shall equitably adjust the
number of Shares covered by each outstanding Award, and the number of Shares
that have been authorized for issuance under the Plan but as to which no Awards
have yet been granted or that have been returned to the Plan upon cancellation,
forfeiture, or expiration of an Award, as well as the price per Share covered by
each such outstanding Award, to reflect any increase or decrease in the number
of issued Shares resulting from a stock-split, reverse stock-split, stock
dividend, combination, recapitalization or reclassification of the Shares, or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company. In the event of any such transaction or
event, the Committee may provide in substitution for any or all outstanding
Options under the Plan such alternative consideration (including securities of
any surviving entity) as it may in good faith determine to be equitable under
the circumstances and may require in connection therewith the surrender of all
Options so replaced. In any case, such substitution of securities shall not
require the consent of any person who is granted Options pursuant to the Plan.
Except as expressly provided herein, or in an Award Agreement, if the Company
issues for consideration shares of stock of any class or securities convertible
into shares of stock of any class, the issuance shall not affect, and no
adjustment by reason thereof shall be required to be made with respect to the
number or price of Shares subject to any Award.

     (b) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company other than as part of a Change of Control, each Award
will terminate immediately prior to the consummation of such action, subject to
the ability of the Committee to exercise any discretion authorized in the case
of a Change in Control.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 17


     (c) Change in Control. In the event of a Change in Control, the Committee
may in its sole and absolute discretion and authority, without obtaining the
approval or consent of the Company's shareholders or any Participant with
respect to his or her outstanding Awards, take one or more of the following
actions:

          (i) arrange for or otherwise provide that each outstanding Award shall
     be assumed or a substantially similar award shall be substituted by a
     successor corporation or a parent or subsidiary of such successor
     corporation (the "Successor Corporation");

          (ii) accelerate the vesting of Awards so that Awards shall vest (and,
     to the extent applicable, become exercisable) as to the Shares that
     otherwise would have been unvested and provide that repurchase rights of
     the Company with respect to Shares issued upon exercise of an Award shall
     lapse as to the Shares subject to such repurchase right;

          (iii) arrange or otherwise provide for the payment of cash or other
     consideration to Participants in exchange for the satisfaction and
     cancellation of outstanding Awards;

          (iv) terminate upon the consummation of the transaction, provided that
     the Committee may in its sole discretion provide for vesting of all or some
     outstanding Awards in full as of a date immediately prior to consummation
     of the Change of Control. To the extent that an Award is not exercised
     prior to consummation of a transaction in which the Award is not being
     assumed or substituted, such Award shall terminate upon such consummation;
     or

          (v) make such other modifications, adjustments or amendments to
     outstanding Awards or this Plan as the Committee deems necessary or
     appropriate, subject however to the terms of Section 15(a) below.

     Notwithstanding the above, in the event a Participant holding an Award
assumed or substituted by the Successor Corporation in a Change in Control is
Involuntarily Terminated by the Successor Corporation in connection with, or
within 12 months following consummation of, the Change in Control, then any
assumed or substituted Award held by the terminated Participant at the time of
termination shall accelerate and become fully vested (and exercisable in full in
the case of Options and SARs), and any repurchase right applicable to any Shares
shall lapse in full, unless an Award Agreement provides for a more restrictive
acceleration or vesting schedule or more restrictive limitations on the lapse of
repurchase rights or otherwise places additional restrictions, limitations and
conditions on an Award. The acceleration of vesting and lapse of repurchase
rights provided for in the previous sentence shall occur immediately prior to
the effective date of the Participant's termination, unless an Award Agreement
provides otherwise.

     (d) Certain Distributions. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Committee may, in its discretion,
appropriately adjust the price per Share covered by each outstanding Award to
reflect the effect of such distribution.

14. TIME OF GRANTING AWARDS.

     The date of grant ("Grant Date") of an Award shall be the date on which the
Committee makes the determination granting such Award or such other date as is
determined by the Committee, provided that in the case of an ISO, the Grant Date
shall be the later of the date on which the Committee makes the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 18


determination granting such ISO or the date of commencement of the Participant's
employment relationship with the Company.

15. MODIFICATION OF AWARDS AND SUBSTITUTION OF OPTIONS.

     (a) Modification, Extension, and Renewal of Awards. Within the limitations
of the Plan, the Committee may modify an Award to accelerate the rate at which
an Option or SAR may be exercised (including without limitation permitting an
Option or SAR to be exercised in full without regard to the installment or
vesting provisions of the applicable Award Agreement or whether the Option or
SAR is at the time exercisable, to the extent it has not previously been
exercised), to accelerate the vesting of any Award, to extend or renew
outstanding Awards or to accept the cancellation of outstanding Awards to the
extent not previously exercised. However, the Committee may not cancel an
outstanding option that is underwater for the purpose of reissuing the option to
the participant at a lower exercise price or granting a replacement award of a
different type. Notwithstanding the foregoing provision, no modification of an
outstanding Award shall materially and adversely affect such Participant's
rights thereunder, unless either the Participant provides written consent or
there is an express Plan provision permitting the Committee to act unilaterally
to make the modification.

     (b) Substitution of Options. Notwithstanding any inconsistent provisions or
limits under the Plan, in the event the Company or an Affiliate acquires
(whether by purchase, merger or otherwise) all or substantially all of
outstanding capital stock or assets of another corporation or in the event of
any reorganization or other transaction qualifying under Section 424 of the
Code, the Committee may, in accordance with the provisions of that Section,
substitute Options for options under the plan of the acquired company provided
(i) the excess of the aggregate fair market value of the shares subject to an
option immediately after the substitution over the aggregate option price of
such shares is not more than the similar excess immediately before such
substitution and (ii) the new option does not give persons additional benefits,
including any extension of the exercise period.

16. TERM OF PLAN.

     The Plan shall continue in effect for a term of ten (10) years from its
effective date as determined under Section 20 below, unless the Plan is sooner
terminated under Section 17 below.

17. AMENDMENT AND TERMINATION OF THE PLAN.

     (a) Authority to Amend or Terminate. Subject to Applicable Laws, the Board
may from time to time amend, alter, suspend, discontinue, or terminate the Plan.

     (b) Effect of Amendment or Termination. No amendment, suspension, or
termination of the Plan shall materially and adversely affect Awards already
granted unless either it relates to an adjustment pursuant to Section 13 above,
or it is otherwise mutually agreed between the Participant and the Committee,
which agreement must be in writing and signed by the Participant and the
Company. Notwithstanding the foregoing, the Committee may amend the Plan to
eliminate provisions which are no longer necessary as a result of changes in tax
or securities laws or regulations, or in the interpretation thereof.

18. CONDITIONS UPON ISSUANCE OF SHARES.

     Notwithstanding any other provision of the Plan or any agreement entered
into by the Company pursuant to the Plan, the Company shall not be obligated,
and shall have no liability for failure, to issue or



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 19


deliver any Shares under the Plan unless such issuance or delivery would comply
with Applicable Law, with such compliance determined by the Company in
consultation with its legal counsel.

19. RESERVATION OF SHARES.

     The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.

20. EFFECTIVE DATE.

     This Plan shall become effective on the date on which it has received
approval by a vote of a majority of the votes cast at a duly held meeting of the
Company's shareholders (or by such other shareholder vote that the Administrator
determines to be sufficient for the issuance of Shares or stock options
according to the Company's governing documents and applicable state law).

21. CONTROLLING LAW.

     All disputes relating to or arising from the Plan shall be governed by the
internal substantive laws (and not the laws of conflicts of laws) of the State
of Delaware, to the extent not preempted by United States federal law. If any
provision of this Plan is held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions shall continue to be fully
effective.

22. LAWS AND REGULATIONS.

     (a) U.S. Securities Laws. This Plan, the grant of Awards, and the exercise
of Options and SARs under this Plan, and the obligation of the Company to sell
or deliver any of its securities (including, without limitation, Options,
Restricted Shares, Restricted Share Units, Deferred Share Units, and Shares)
under this Plan shall be subject to all Applicable Law. In the event that the
Shares are not registered under the Securities Act of 1933, as amended (the
"Act"), or any applicable state securities laws prior to the delivery of such
Shares, the Company may require, as a condition to the issuance thereof, that
the persons to whom Shares are to be issued represent and warrant in writing to
the Company that such Shares are being acquired by him or her for investment for
his or her own account and not with a view to, for resale in connection with, or
with an intent of participating directly or indirectly in, any distribution of
such Shares within the meaning of the Act, and a legend to that effect may be
placed on the certificates representing the Shares.

     (b) Other Jurisdictions. To facilitate the making of any grant of an Award
under this Plan, the Committee may provide for such special terms for Awards to
Participants who are foreign nationals or who are employed by the Company or any
Affiliate outside of the United States of America as the Committee may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom. The Company may adopt rules and procedures relating to the operation and
administration of this Plan to accommodate the specific requirements of local
laws and procedures of particular countries. Without limiting the foregoing, the
Company is specifically authorized to adopt rules and procedures regarding the
conversion of local currency, taxes, withholding procedures and handling of
stock certificates which vary with the customs and requirements of particular
countries. The Company may adopt sub-plans and establish escrow accounts and
trusts as may be appropriate or applicable to particular locations and
countries.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 20


23. NO SHAREHOLDER RIGHTS.

     Neither a Participant nor any transferee of a Participant shall have any
rights as a shareholder of the Company with respect to any Shares underlying any
Award until the date of issuance of a share certificate to a Participant or a
transferee of a Participant for such Shares in accordance with the Company's
governing instruments and Applicable Law. Prior to the issuance of Shares
pursuant to an Award, a Participant shall not have the right to vote or to
receive dividends or any other rights as a shareholder with respect to the
Shares underlying the Award, notwithstanding its exercise in the case of Options
and SARs. No adjustment will be made for a dividend or other right that is
determined based on a record date prior to the date the stock certificate is
issued, except as otherwise specifically provided for in this Plan.

24. NO EMPLOYMENT RIGHTS.

     The Plan shall not confer upon any Participant any right to continue an
employment, service or consulting relationship with the Company, nor shall it
affect in any way a Participant's right or the Company's right to terminate the
Participant's employment, service, or consulting relationship at any time, with
or without Cause.

25. TERMINATION, RESCISSION AND RECAPTURE.

     (a) Each Award under the Plan is intended to align the Participant's
long-term interest with those of the Company. If the Participant engages in
certain activities discussed below, either during employment or after employment
with the Company terminates for any reason, the Participant is acting contrary
to the long-term interests of the Company. Accordingly, except as otherwise
expressly provided in the Award Agreement, the Company may terminate any
outstanding, unexercised, unexpired, unpaid, or deferred Awards ("Termination"),
rescind any exercise, payment or delivery pursuant to the Award ("Rescission"),
or recapture any Common Stock (whether restricted or unrestricted) or proceeds
from the Participant's sale of Shares issued pursuant to the Award
("Recapture"), if the Participant does not comply with the conditions of
subsections (b) and (c) hereof (collectively, the "Conditions").

     (b) A Participant shall not, without the Company's prior written
authorization, disclose to anyone outside the Company, or use in other than the
Company's business, any proprietary or confidential information or material, as
those or other similar terms are used in any applicable patent, confidentiality,
inventions, secrecy, or other agreement between the Participant and the Company
with regard to any such proprietary or confidential information or material.

     (c) Pursuant to any agreement between the Participant and the Company with
regard to intellectual property (including but not limited to patents,
trademarks, copyrights, trade secrets, inventions, developments, improvements,
proprietary information, confidential business and personnel information), a
Participant shall promptly disclose and assign to the Company or its designee
all right, title, and interest in such intellectual property, and shall take all
reasonable steps necessary to enable the Company to secure all right, title and
interest in such intellectual property in the United States and in any foreign
country.

     (d) Upon exercise, payment, or delivery of cash or Common Stock pursuant to
an Award, the Participant shall certify on a form acceptable to the Company that
he or she is in compliance with the terms and conditions of the Plan and, if a
severance of Continuous Service has occurred for any reason, shall state the
name and address of the Participant's then-current employer or any entity for
which the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 21


Participant performs business services and the Participant's title, and shall
identify any organization or business in which the Participant owns a
greater-than-five-percent equity interest.

     (e) If the Company determines, in its sole and absolute discretion, that
(i) a Participant has violated any of the Conditions or (ii) during his or her
Continuous Service, or within one year after its termination for any reason, a
Participant (a) has rendered services to or otherwise directly or indirectly
engaged in or assisted, any organization or business that, in the judgment of
the Company in its sole and absolute discretion, is or is working to become
competitive with the Company; (b) has solicited any non-administrative employee
of the Company to terminate employment with the Company; or (c) has engaged in
activities which are materially prejudicial to or in conflict with the interests
of the Company, including any breaches of fiduciary duty or the duty of loyalty,
then the Company may, in its sole and absolute discretion, impose a Termination,
Rescission, and/or Recapture with respect to any or all of the Participant's
relevant Awards, Shares, and the proceeds thereof.

     (f) Within ten days after receiving notice from the Company of any such
activity, the Participant shall deliver to the Company the Shares acquired
pursuant to the Award, or, if Participant has sold the Shares, the gain
realized, or payment received as a result of the rescinded exercise, payment, or
delivery; provided, that if the Participant returns Shares that the Participant
purchased pursuant to the exercise of an Option (or the gains realized from the
sale of such Common Stock), the Company shall promptly refund the exercise
price, without earnings, that the Participant paid for the Shares. Any payment
by the Participant to the Company pursuant to this Section 21 shall be made
either in cash or by returning to the Company the number of Shares that the
Participant received in connection with the rescinded exercise, payment, or
delivery. It shall not be a basis for Termination, Rescission or Recapture if
after termination of a Participant's Continuous Service, the Participant
purchases, as an investment or otherwise, stock or other securities of such an
organization or business, so long as (i) such stock or other securities are
listed upon a recognized securities exchange or traded over-the-counter, and
(ii) such investment does not represent more than a five percent (5%) equity
interest in the organization or business.

     (g) Notwithstanding the foregoing provisions of this Section, the Company
has sole and absolute discretion not to require Termination, Rescission and/or
Recapture, and its determination not to require Termination, Rescission and/or
Recapture with respect to any particular act by a particular Participant or
Award shall not in any way reduce or eliminate the Company's authority to
require Termination, Rescission and/or Recapture with respect to any other act
or Participant or Award. Nothing in this Section shall be construed to impose
obligations on the Participant to refrain from engaging in lawful competition
with the Company after the termination of employment that does not violate
subsections (b) or (c) of this Section, other than any obligations that are part
of any separate agreement between the Company and the Participant or that arise
under applicable law.

     (h) All administrative and discretionary authority given to the Company
under this Section shall be exercised by the most senior human resources
executive of the Company or such other person or committee (including without
limitation the Committee) as the Committee may designate from time to time.

     (i) Notwithstanding any provision of this Section, if any provision of this
Section is determined to be unenforceable or invalid under any applicable law,
such provision will be applied to the maximum extent permitted by applicable
law, and shall automatically be deemed amended in a manner consistent with its
objectives to the extent necessary to conform to any limitations required under
applicable law. Furthermore, if any provision of this Section is illegal under
any applicable law, such provision shall be null and void to the extent
necessary to comply with applicable law.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 22


     Notwithstanding the foregoing, but subject to any contrary terms set forth
in any Award Agreement, this Section shall not be applicable: (i) to any
Participant who is not, on the Award Date, an Employee of the Company or its
Affiliates; and (ii) to any Participant from and after his or her termination of
Continuous Service after a Change in Control.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 23


                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                   ----------

                             APPENDIX A: DEFINITIONS

                                   ----------

     As used in the Plan, the following definitions shall apply:

     "AFFILIATE" means, with respect to any Person (as defined below), any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person or the power to elect directors, whether through the ownership of
voting securities, by contract or otherwise; and the terms "affiliated,"
"controlling" and "controlled" have meanings correlative to the foregoing.

     "APPLICABLE LAW" means the legal requirements relating to the
administration of options and share-based plans under applicable U.S. federal
and state laws, the Code, any applicable stock exchange or automated quotation
system rules or regulations, and the applicable laws of any other country or
jurisdiction where Awards are granted, as such laws, rules, regulations and
requirements shall be in place from time to time.

     "AWARD" means any award made pursuant to the Plan, including awards made in
the form of an Option, an SAR, a Restricted Share, a Restricted Share Unit, an
Unrestricted Share, a Deferred Share Unit, and a Performance Award, or any
combination thereof, whether alternative or cumulative, authorized by and
granted under this Plan.

     "AWARD AGREEMENT" means any written document setting forth the terms of an
Award that has been authorized by the Committee. The Committee shall determine
the form or forms of documents to be used, and may change them from time to time
for any reason.

     "BOARD" means the Board of Directors of the Company.

     "CAUSE" for termination of a Participant's Continuous Service will exist if
the Participant is terminated from employment or other service with the Company
or an Affiliate for any of the following reasons: (i) the Participant's willful
failure to substantially perform his or her duties and responsibilities to the
Company or deliberate violation of a material Company policy; (ii) the
Participant's commission of any material act or acts of fraud, embezzlement,
dishonesty, or other willful misconduct; (iii) the Participant's material
unauthorized use or disclosure of any proprietary information or trade secrets
of the Company or any other party to whom the Participant owes an obligation of
nondisclosure as a result of his or her relationship with the Company; or (iv)
Participant's willful and material breach of any of his or her obligations under
any written agreement or covenant with the Company.

     The Committee shall in its discretion determine whether or not a
Participant is being terminated for Cause. The Committee's determination shall,
unless arbitrary and capricious, be final and binding on the Participant, the
Company, and all other affected persons. The foregoing definition does not in
any way



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 24


limit the Company's ability to terminate a Participant's employment or
consulting relationship at any time, and the term "Company" will be interpreted
herein to include any Affiliate or successor thereto, if appropriate.

     "CHANGE IN CONTROL" means any of the following:

          (i) Acquisition of Controlling Interest. Any Person becomes the
     Beneficial Owner, directly or indirectly, of securities of the Company
     representing 50% or more of the combined voting power of the Company's then
     outstanding securities. In applying the preceding sentence, (i) securities
     acquired directly from the Company or its Affiliates by or for the Person
     shall not be taken into account, and (ii) an agreement to vote securities
     shall be disregarded unless its ultimate purpose is to cause what would
     otherwise be a Change in Control, as reasonably determined by the Board.

          (ii) Change in Board Control. During a consecutive 2-year period
     commencing after the date of adoption of this Plan, individuals who
     constituted the Board at the beginning of the period (or their approved
     replacements, as defined in the next sentence) cease for any reason to
     constitute a majority of the Board. A new Director shall be considered an
     "approved replacement" Director if his or her election (or nomination for
     election) was approved by a vote of at least a majority of the Directors
     then still in office who either were Directors at the beginning of the
     period or were themselves approved replacement Directors, but in either
     case excluding any Director whose initial assumption of office occurred as
     a result of an actual or threatened solicitation of proxies or consents by
     or on behalf of any Person other than the Board.

          (iii) Merger. The Company consummates a merger, or consolidation of
     the Company with any other corporation unless: (a) the voting securities of
     the Company outstanding immediately before the merger or consolidation
     would continue to represent (either by remaining outstanding or by being
     converted into voting securities of the surviving entity) at least 50% of
     the combined voting power of the voting securities of the Company or such
     surviving entity outstanding immediately after such merger or
     consolidation; and (b) no Person becomes the Beneficial Owner, directly or
     indirectly, of securities of the Company representing 50% or more of the
     combined voting power of the Company's then outstanding securities.

          (iv) Sale of Assets. The stockholders of the Company approve an
     agreement for the sale or disposition by the Company of all, or
     substantially all, of the Company's assets.

          (v) Liquidation or Dissolution. The stockholders of the Company
     approve a plan or proposal for liquidation or dissolution of the Company.

     Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.

     "CODE" means the U.S. Internal Revenue Code of 1986, as amended.

     "COMMITTEE" means one or more committees or subcommittees of the Board
appointed by the Board to administer the Plan in accordance with Section 4
above. With respect to any decision involving an



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 25


Award intended to satisfy the requirements of Section 162(m) of the Code, the
Committee shall consist of two or more Directors of the Company who are "outside
directors" within the meaning of Section 162(m) of the Code. With respect to any
decision relating to a Reporting Person, the Committee shall consist of two or
more Directors who are disinterested within the meaning of Rule 16b-3.

     "COMPANY" means Commerce Energy Group, Inc., a Delaware corporation;
provided, however, that in the event the Company reincorporates to another
jurisdiction, all references to the term "Company" shall refer to the Company in
such new jurisdiction.

     "CONSULTANT" means any person, including an advisor, who is engaged by the
Company or any Affiliate to render services and is compensated for such
services.

     "CONTINUOUS SERVICE" means the absence of any interruption or termination
of service as an Employee, Director, or Consultant. Continuous Service shall not
be considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Committee, provided that such
leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; (iv)
changes in status from Director to advisory director or emeritus status; or (v)
in the case of transfers between locations of the Company or between the
Company, its Affiliates or their respective successors. Changes in status
between service as an Employee, Director, and a Consultant will not constitute
an interruption of Continuous Service.

     "DEFERRED SHARE UNITS" mean Awards pursuant to Section 9 of the Plan.

     "DIRECTOR" means a member of the Board, or a member of the board of
directors of an Affiliate.

     "DISABLED" means a condition under which a Participant --

          (a) is unable to engage in any substantial gainful activity by reason
     of any medically determinable physical or mental impairment which can be
     expected to result in death or can be expected to last for a continuous
     period of not less than 12 months, or

          (b) is, by reason of any medically determinable physical or mental
     impairment which can be expected to result in death or can be expected to
     last for a continuous period of not less than 12 months, received income
     replacement benefits for a period of not less than 3 months under an
     accident or health plan covering employees of the Company.

     "ELIGIBLE PERSON" means any Consultant, Director or Employee and includes
non-Employees to whom an offer of employment has been extended.

     "EMPLOYEE" means any person whom the Company or any Affiliate classifies as
an employee (including an officer) for employment tax purposes, whether or not
that classification is correct. The payment by the Company of a director's fee
to a Director shall not be sufficient to constitute "employment" of such
Director by the Company.

     "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

     "FAIR MARKET VALUE" means, as of any date (the "Determination Date") means:
(i) the closing price of a Share on the New York Stock Exchange or the American
Stock Exchange (collectively, the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 26


"Exchange"), on the Determination Date, or, if shares were not traded on the
Determination Date, then on the nearest preceding trading day during which a
sale occurred; or (ii) if such stock is not traded on the Exchange but is quoted
on NASDAQ or a successor quotation system, (A) the last sales price (if the
stock is then listed as a National Market Issue under The Nasdaq National Market
System) or (B) the mean between the closing representative bid and asked prices
(in all other cases) for the stock on the Determination Date as reported by
NASDAQ or such successor quotation system; or (iii) if such stock is not traded
on the Exchange or quoted on NASDAQ but is otherwise traded in the
over-the-counter, the mean between the representative bid and asked prices on
the Determination Date; or (iv) if subsections (i)-(iii) do not apply, the fair
market value established in good faith by the Board.

     "GRANT DATE" has the meaning set forth in Section 14 of the Plan.

     "INCENTIVE SHARE OPTION OR ISO" hereinafter means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable Award Agreement.

     "INVOLUNTARY TERMINATION" means termination of a Participant's Continuous
Service under the following circumstances occurring on or after a Change in
Control: (i) termination without Cause by the Company or an Affiliate or
successor thereto, as appropriate; or (ii) voluntary termination by the
Participant within 60 days following (A) a material reduction in the
Participant's job responsibilities, provided that neither a mere change in title
alone nor reassignment to a substantially similar position shall constitute a
material reduction in job responsibilities; (B) an involuntary relocation of the
Participant's work site to a facility or location more than 50 miles from the
Participant's principal work site at the time of the Change in Control; or (C) a
material reduction in Participant's total compensation other than as part of an
reduction by the same percentage amount in the compensation of all other
similarly-situated Employees, Directors or Consultants.

     "NON-ISO" means an Option not intended to qualify as an ISO, as designated
in the applicable Award Agreement.

     "OPTION" means any stock option granted pursuant to Section 6 of the Plan.

     "PARTICIPANT" means any holder of one or more Awards, or the Shares
issuable or issued upon exercise of such Awards, under the Plan.

     "PERFORMANCE AWARDS" mean Performance Units and Performance Compensation
Awards granted pursuant to Section 10.

     "PERFORMANCE COMPENSATION AWARDS" mean Awards granted pursuant to Section
10(b) of the Plan.

     "PERFORMANCE UNIT" means Awards granted pursuant to Section 10(a) of the
Plan which may be paid in cash, in Shares, or such combination of cash and
Shares as the Committee in its sole discretion shall determine.

     "PERSON" means any natural person, association, trust, business trust,
cooperative, corporation, general partnership, joint venture, joint-stock
company, limited partnership, limited liability company, real estate investment
trust, regulatory body, governmental agency or instrumentality, unincorporated
organization or organizational entity.




Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 27


     "PLAN" means this Commerce Energy Group, Inc. 2006 Stock Incentive Plan.

     "REPORTING PERSON" means an officer, Director, or greater than ten percent
shareholder of the Company within the meaning of Rule 16a-2 under the Exchange
Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange
Act.

     "RESTRICTED SHARES" mean Shares subject to restrictions imposed pursuant to
Section 8 of the Plan.

     "RESTRICTED SHARE UNITS" mean Awards pursuant to Section 8 of the Plan.

     "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act, as
amended from time to time, or any successor provision.

     "SAR" OR "SHARE APPRECIATION RIGHT" means Awards granted pursuant to
Section 7 of the Plan.

     "SHARE" means a share of common stock of the Company, par value $0.001, as
adjusted in accordance with Section 13 of the Plan.

     "TEN PERCENT HOLDER" means a person who owns stock representing more than
ten percent (10%) of the combined voting power of all classes of stock of the
Company or any Affiliate.

     "UNRESTRICTED SHARES" mean Shares awarded pursuant to Section 8 of the
Plan.

                         FEDERAL INCOME TAX CONSEQUENCES

          The following is a general discussion of certain U.S. federal income
tax consequences relating to awards granted under the 2006 Stock Incentive Plan.
This discussion does not address all aspects of U.S. federal income taxation,
does not discuss state, local and foreign tax issues and does not discuss
considerations applicable to a holder who is, with respect to the United States,
a non-resident alien individual. This summary of federal income tax consequences
does not purport to be complete and is based upon interpretations of the
existing laws, regulations and rulings which could be altered materially with
enactment of any new tax legislation.

          Under the United States Internal Revenue Code (the "Code"), the
Company will generally be entitled to a deduction for federal income tax
purposes at the same time and in the same amount as the ordinary income that
participants recognize pursuant to awards (subject to the participant's overall
compensation being reasonable, and to the discussion below with respect to Code
section 162(m)). For participants, the expected U.S. tax consequences of awards
are as follows:

          ISOs. ISOs may only be granted to employees and must be exercised
while employed or within 3 months of the termination of employment (except in
cases of death or disability). A participant will not recognize income upon the
grant of an ISO. There are generally no tax consequences to the participant upon
exercise of an ISO (except the amount by which the fair market value of the
shares at the time of exercise exceeds the option exercise price is a tax
preference item possibly giving rise to an alternative minimum tax). If the
shares are not disposed of within two years from the date the ISO was granted or
within one year after the ISO was exercised, any gain realized upon the
subsequent disposition of the shares will be characterized as long-term capital
gain and any loss will be characterized as long-term capital loss. If either of
these holding period requirements are not met, then a "disqualifying
disposition"




Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 28


occurs and (a) the participant recognizes ordinary income gain in the amount by
which the fair market value of the shares at the time of exercise exceeded the
exercise price for the ISO and (b) any remaining amount realized on disposition
(except for certain "wash" sales, gifts or sales to related persons) will be
characterized as capital gain or loss.

          If a participant pays the option exercise price of an ISO by the
surrender of unrestricted shares of Common Stock that he or she already owns, he
or she will not recognize gain or loss on the shares surrendered. A number of
shares received equal to the number of shares surrendered will have a basis
equal to the basis of the shares surrendered, and the participant's holding
period of such shares received will include the holding period of the shares
surrendered. To the extent that the value of the shares received exceeds the
value of the shares surrendered, those shares received that represent such
excess in value will have a basis equal to zero and a holding period that will
commence on the day they are acquired. However, if a participant surrenders
shares that were acquired through the previous exercise of an ISO before the end
of the requisite holding period, the participant may recognize ordinary income
on the surrender of those shares.

          Options otherwise qualifying as ISOs will be treated as non-ISOs to
the extent that the fair market value of the shares with respect to which
incentive stock options granted after 1986 are exercisable for the first time by
a participant during any calendar year (under all of the Company's plans and
those of any of its subsidiaries) exceeds $100,000. This rule is applied by
taking the options into account in the order in which they are granted.

          Non-ISOs. A participant will not recognize income at the time that a
non-ISO is granted. At the time a non-ISO is exercised, the participant will
recognize ordinary income in an amount equal to the excess of (a) the fair
market value of the shares issued to the participant on the exercise date over
(b) the exercise price paid for the shares. At the time of sale of shares
acquired pursuant to the exercise of a non-ISO, the appreciation (or
depreciation) in value of the shares after the date of exercise will be treated
either as short-term or long-term capital gain (or loss) depending on how long
the shares have been held.

          If a participant pays the option price of a non-ISO in whole or in
part by the surrender of Common Stock that he or she already owns, he or she
will not recognize gain or loss on the shares surrendered. A number of shares
received equal to the number of shares surrendered will have a tax basis equal
to the basis of the shares surrendered, and the participant's holding period of
such shares received will include the holding period of the shares surrendered.
To the extent that the value of the shares received upon exercise exceeds the
value of the shares surrendered, the excess (reduced by the amount of any cash
paid by the participant) will be ordinary income. Furthermore, the shares
received that represent such excess in value will have a basis equal to their
fair market value and a holding period that will commence on the day after they
are acquired. However, if the shares surrendered are considered substantially
non-vested property within the meaning of Section 83 of the Code, a Section
83(b) Election (as defined below) with respect to the shares has not been made,
and certain shares received upon exercise are considered substantially
non-vested property, the participant will generally recognize ordinary income in
the year during which the restrictions terminate on the shares received.

          Share Appreciation Rights. A participant to whom a SAR is granted will
not recognize income at the time of grant of the SAR. Upon exercise of a SAR,
the participant must recognize taxable compensation income in an amount equal to
the amount or cash received and the fair market value of any shares that the
participant receives.




Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 29


          Restricted Shares, Restricted Share Units, Deferred Share Units,
Performance Awards, and Unrestricted Shares. In general, a participant will not
recognize income at the time of grant of restricted shares, restricted share
units, deferred share units, or performance awards, unless the participant
elects with respect to restricted shares or restricted share units to accelerate
income taxation to the date of the award pursuant to an election under Section
83(b) of the Code (a "Section 83(b) Election"). In this event, a participant
would recognize ordinary income equal to the excess of the market value of the
restricted shares over any amount the participant pays for them (in which case
subsequent gain or loss would be capital in nature). In the absence of an
election to accelerate income taxation to the date of an award, a participant
must recognize taxable compensation income equal to the value of any cash or
unrestricted shares that the participant receives. The same tax consequences
apply to performance awards and awards of unrestricted shares.

          Special Tax Provisions. Under certain circumstances, the accelerated
vesting, cash-out or accelerated lapse of restrictions on awards in connection
with a change in control of the Company might be deemed an "excess parachute
payment" for purposes of the golden parachute tax provisions of Code section
280G, and the participant may be subject to a 20% excise tax and the Company may
be denied a tax deduction. Furthermore, the Company may not be able to deduct
the aggregate compensation in excess of $1,000,000 attributable to awards that
are not performance-based" within the meaning of Code section 162(m) in certain
circumstances. The 2005 Plan is designed to permit certain awards that qualify
as performance-based compensation for this purpose.

          Special Rules Applicable to Insiders. In limited circumstances where
the sale of Common Stock received as a result of a grant or award could subject
those participants who are directors or officers of the Company subject to
Section 16(b) of the Exchange Act (collectively, "Insiders") to a lawsuit under
Section 16(b) of the Exchange Act, the tax consequences to the Insider may
differ from the tax consequences described above. In these circumstances, unless
Section 83(b) Election has been made, the principal difference (in cases where
the Insider would otherwise be currently taxed upon the participant's receipt of
the stock) usually will be to postpone valuation and taxation of the stock
received so long as the sale of the stock received could subject the Insider to
suit under Section 16(b) of the Exchange Act, but no longer than six months.

                 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

          The following documents previously filed by the Company with the
Securities and Exchange Commission (the "Commission") are incorporated herein by
reference:

               -    The Company's Annual Report on Form 10-K for the year ended
                    July 31, 2005 filed with the Commission on October 31, 2005;

               -    The Company's Quarterly Report on Form 10-Q for the quarter
                    ended October 31, 2005 filed with the Commission on December
                    15, 2005;

               -    The Company's Quarterly Report on Form 10-Q for the quarter
                    ended January 31, 2006 filed with the Commission on March
                    16, 2006;

               -    The Company's amended Quarterly Report on Form 10-Q/A
                    (Amendment No. 1) for the quarter ended October 31, 2004
                    filed with the Commission on October 31, 2005;

               -    The Company's amended Quarterly Report on Form 10-Q/A
                    (Amendment No. 3) for the quarter ended January 31, 2005
                    filed with the Commission on October 31, 2005;

               -    The Company's amended Quarterly Report on Form 10-Q/A
                    (Amendment No. 2) for the quarter ended April 30, 2005 filed
                    with the Commission on October 31, 2005;

               -    The Registrant's Current Reports on Form 8-K, as filed with
                    the Commission on August 2, 2005, August 5, 2005, August 30,
                    2005, September 30, 2005, October 13, 2005, October 31,
                    2005,




Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 30


                    November 14, 2005, November 17, 2005, November 23, 2005,
                    December 2, 2005, December 6, 2005, December 8, 2005,
                    December 15, 2005 (but specifically not incorporating by
                    reference herein the Form 8-K filed on December 15, 2005
                    announcing the Company's earnings for the quarter ended
                    October 31, 2005), February 1, 2006, March 2, 2006 and April
                    18, 2006;

               -    The Company's amended Current Report on Form 8-K/A
                    (Amendment No. 2) filed with the Commission on August 2,
                    2005; and

               -    the description of the Common Stock, par value $.001 per
                    share, of the Company and the common stock purchase rights,
                    which is incorporated by reference into the Company's
                    registration statement on Form 8-A, filed with the
                    Commission on July 6, 2004, pursuant to the Securities
                    Exchange Act of 1934, as amended (the "Exchange Act") and
                    any amendment or report filed for the purpose of updating
                    such description.

          In addition, all documents filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment which indicates that all securities
offered have been sold or which de-registers all securities then remaining
unsold, shall be deemed to be incorporated by reference into this Memorandum and
to be a part hereof from the date of filing of such documents with the
Securities and Exchange Commission.

          Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Memorandum to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Memorandum.

                      USE OF PROCEEDS, TAX WITHHOLDING AND
                                    NO LIENS

          Any proceeds that the Company receives from the sale of Common Stock
pursuant to Awards will be used for general corporate purposes. Employment and
withholding taxes will apply to the income arising from Awards. Participants
will not be subject to any additional charges (other than payment of the
exercise price for Options) in connection with their Awards. Nor does the Plan
allow for any liens on any Awards, funds, or Common Stock that Participants hold
or may receive pursuant to the Plan.

                             ADDITIONAL INFORMATION

          Additional information about the Plan and its administrators may be
obtained from, and copies of the following documents or reports will be
furnished without charge upon written or oral request to the Secretary, Commerce
Energy Group, Inc., 600 Anton Boulevard, Suite 2000, Costa Mesa, California
92626; telephone number (714) 259-2500:

          -    Documents or reports incorporated by reference in this Memorandum
               (excluding exhibits to such documents or reports unless such
               exhibits are specifically incorporated by reference into such
               documents or reports);

          -    The Company's annual report to shareholders for the latest fiscal
               year; and




Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 31


          -    All reports, proxy statements and other communications
               distributed to the shareholders of the Company.

         All participants shall receive, if they do not otherwise receive such
materials, copies of all reports, proxy statements and other communications
distributed to the Company's security holders generally. Such materials shall be
delivered not later than the time at which they are sent to the Company's
security holders.


                                                                       EXHIBIT C

                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

                           SECTION 83(B) ELECTION FORM

                                   ----------

Attached is an Internal Revenue Code Section 83(b) Election Form. IF YOU WISH TO
MAKE A SECTION 83(B) ELECTION, YOU MUST DO SO WITHIN 30 DAYS AFTER THE DATE THE
RESTRICTED SHARES COVERED BY THE ELECTION WERE TRANSFERRED TO YOU. In order to
make the election, you must completely fill out the attached form and file one
copy with the Internal Revenue Service office where you file your tax return. In
addition, one copy of the statement also must be submitted with your income tax
return for the taxable year in which you make this election. Finally, you also
must submit a copy of the election form to the Company within 10 days after
filing that election with the Internal Revenue Service. A Section 83(b) election
normally cannot be revoked.



                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

         ELECTION TO INCLUDE VALUE OF RESTRICTED SHARES IN GROSS INCOME
          IN YEAR OF TRANSFER UNDER INTERNAL REVENUE CODE SECTION 83(B)

                                   ----------

     Pursuant to Section 83(b) of the Internal Revenue Code, I hereby elect
within 30 days after receiving the property described herein to be taxed
immediately on its value specified in item 5 below.

1.   My General Information:

               Name: __________________________________
               Address: _______________________________

                        _______________________________
               S.S.N.
               or T.I.N.: _____________________________

2.   Description of the property with respect to which I am making this
     election:

          60,000 shares of restricted common stock of Commerce Energy Group,
          Inc. (the "Restricted Shares").

3.   The Restricted Shares were transferred to me on March 27, 2007. This
     election relates to the 2007 calendar taxable year.

4.   The Restricted Shares are subject to the following restrictions:

          The Restricted Shares are forfeitable until they is are earned in
          accordance with Section 1 of the Commerce Energy Group, Inc. 2006
          Stock Incentive Plan ("Plan") Restricted Shares Award Agreement
          ("Award Agreement") or other Award Agreement or Plan provisions. The
          Restricted Shares generally are not transferable until my interest
          becomes vested and nonforfeitable, pursuant to the Award Agreement and
          the Plan.

5.   Fair market value:

          The fair market value at the time of transfer (determined without
          regard to any restrictions other than restrictions which by their
          terms never will lapse) of the Restricted Shares with respect to which
          I am making this election is $_____ per share.



6.   Amount paid for Restricted Shares:

          The amount I paid for the Restricted Shares is $0 per share.

7.   Furnishing statement to employer:

          A copy of this statement has been furnished to my employer,
          ______________. If the transferor of the Restricted Shares is not my
          employer, that entity also has been furnished with a copy of this
          statement.

8.   Award Agreement or Plan not affected:

          Nothing contained herein shall be held to change any of the terms or
          conditions of the Award Agreement or the Plan.

Dated: ____________ __, 20__.


                                        ----------------------------------------
                                        Taxpayer



                                                                      EXHIBIT D

                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

                           DESIGNATION OF BENEFICIARY

                                   ----------

          In connection with Award Agreements between Commerce Energy Group,
Inc. (the "Company") and _______________, an individual residing at
___________________ (the "Recipient"), the Recipient hereby designates the
person specified below as the beneficiary of the Recipient's interest in Awards
as defined in the Company's 2006 Stock Incentive Plan (the "Plan"). This
designation shall remain in effect until revoked in writing by the Recipient.

               Name of Beneficiary: ______________________________________

               Address:             ______________________________________

                                    ______________________________________

                                    ______________________________________

               Social Security No.: ______________________________________

     This beneficiary designation relates to any and all of Recipient's rights
under the following Award or Awards:

          [ ]  any Award that Recipient has received under the Plan.

          [ ]  the _________________ Award that Recipient received pursuant to
               an award agreement dated _________ __, ____ between Recipient and
               the Company.

          The Recipient understands that this designation operates to entitle
the above-named beneficiary to the rights conferred by an Award from the date
this form is delivered to the Company until such date as this designation is
revoked in writing by the Recipient, including by delivery to the Company of a
written designation of beneficiary executed by the Recipient on a later date.

                                        Date:
                                              ----------------------------------


                                        By:
                                            ------------------------------------
                                            [Recipient Name]

Sworn to before me this
____ day of ____________, 200_


- -------------------------------------
Notary Public
County of
          ---------------------------
State of
         ----------------------------


                                    EXHIBIT C

                    SEPARATION AGREEMENT AND GENERAL RELEASE

     This Separation Agreement and General Release (this "Agreement") is hereby
entered into by and between Erik A. Lopez, Sr., an individual (the "Executive"),
and Commerce Energy Group, Inc., a Delaware corporation, on behalf of itself and
all of its subsidiaries (collectively, the "Company").

                                    RECITALS

     A. The Executive has been employed by the Company pursuant to an Employment
Agreement by and between the Company and the Executive effective as of March 26,
2007, attached hereto as Exhibit A (the "Employment Agreement"), serving as
Senior Vice President and General Counsel of the Company; and

     B. The Executive's employment with the Company and any of its parents,
direct or indirect subsidiaries, affiliates, divisions or related entities
(collectively referred to herein as the "Company and its Related Entities") will
be ended on the terms and conditions set forth in this Agreement.

                                    AGREEMENT

     In consideration of the mutual promises contained herein and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereby agree as follows:

          1. Effective Date. Except as otherwise provided herein, this Agreement
shall be effective on the eighth day after it has been executed by both of the
parties (the "Effective Date").

          2. End of Employment. The Executive's employment with the Company and
its Related Entities has ended or will end, effective as of 12:00 p.m. PDT, on
______________ (the "Termination Date").

          3. Continuation of Benefits After the Termination Date. Except as
expressly provided in this Agreement or in the plan documents governing the
Company's employee benefit plans, after the Termination Date, the Executive will
no longer be eligible for, receive, accrue, or participate in any other benefits
or benefit plans provided by the Company and its Related Entities, including,
without limitation, medical, dental and life insurance benefits, and the
Company's 401(k) retirement plan; provided, however, that nothing in this
Agreement shall waive the Executive's right to any vested amounts in the
Company's 401(k) retirement plan, which amounts shall be handled as provided in
the plan.

          4. COBRA Benefits. The Company shall provide the Executive with
continuation coverage under the terms of COBRA for a period of twelve (12)
months following the Termination Date, as long as [IF AGE 40 OR OVER ON
TERMINATION DATE: and the Executive has not revoked this Agreement as provided
in Section 15(c), below, and] the Company's Chief Executive Officer has received
a signed original of this Agreement. Thereafter, the Executive



shall have the right to continue such coverage at his own expense in accordance
with the provisions of COBRA.

          5. Normal Salary Through Termination Date. Within one business day
after the Termination Date, the Company shall pay the Executive the prorated
portion of his salary earned through the Termination Date, and for all accrued,
unused vacation days.

          6. Severance Payments. In return for the Executive's promises in this
Agreement, the Company will provide Executive with a severance payment in the
gross amount of $________________, which is equal to [twelve (12) months of base
salary ("Severance Payment"), less required withholdings and authorized
deductions. The foregoing amount shall be paid as follows: 50% of said amount
payable in a lump sum on the first business day after six (6) months from the
Termination Date, [IF AGE 40 OR OVER ON THE TERMINATION DATE: as long as the
Executive has not revoked this Agreement as provided in Section 15(c), below,
and] and the Company's Chief Executive Officer has received a signed original of
this Agreement, and the remaining 50% payable in six (6) equal monthly
installments starting on the business day after seven (7) months from the
Termination Date. The payment[s] shall be made, at the option of the Executive,
by checks mailed to the Executive or direct deposit to an account specified by
him.

          7. Stock Awards and Stock Options. The number of outstanding unvested
stock options and restricted stock previously granted to the Executive that
would have vested over the twelve (12) month period after the Termination Date
shall become immediately vested on the first business day after the Effective
Date [IF AGE 40 OR OVER ON THE TERMINATION DATE; SO LONG AS THE EXECUTIVE HAS
NOT REVOKED THIS AGREEMENT AS PROVIDED IN SECTION 15(C) BELOW].

          8. Effect of Subsequent Employment. If the Executive accepts
employment any time prior to the expiration of the period of time equal to the
months of pay constituting the Severance Payment and payment for continuation
coverage under COBRA ("Severance Period"), the Company's obligation to pay the
balance of the Severance Payment and the premiums for continuation coverage
under COBRA will be extinguished as of the date the Executive accepts the offer
of employment, and the Executive shall not receive the unpaid portion of the
Severance Payment, and any COBRA continuation coverage under the Company's group
health plan thereafter will be at his own expense.

          9. Acknowledgement of Total Compensation and Indebtedness. The
Executive acknowledges and agrees that the cash payments under Sections 5 and 6
of this Agreement extinguish any and all obligations for monies, or other
compensation or benefits that the Executive claims or could claim to have earned
or claims or could claim is owed to him as a result of his employment by the
Company and its Related Entities through the Termination Date, under the
Employment Agreement or otherwise.

          10. Tax Consequences. The Executive acknowledges that (a) the Company
has not made any representations to him about, and that he has not relied upon
any statement in this Agreement with respect to, any individual tax consequences
that may arise by virtue of any payment provided under this Agreement and/or his
exercise of any stock options, including, but not limited to, the applicability
of Section 409A of the Internal Revenue Code, and (b) he has or will consult
with his own tax advisors as to any such tax consequences.


                                      -2-



          11. Status of Related Agreements and Future Employment.

               (a) Agreements Between the Executive and the Company. The
Executive and the Company agree that, in addition to this Agreement, the
Employment Agreement, attached hereto as Exhibit A, and the Indemnification
Agreement dated as of March 26, 2007, attached hereto as Exhibit B (the
"Commerce Indemnification Agreement") are the only other executed agreements
between the Company and the Executive.

               (b) Employment Agreement. The parties agree that the Employment
Agreement shall be terminated as of the Termination Date. Notwithstanding the
termination of the Employment Agreement, the Executive acknowledges that the
duties and obligations set forth in Section 6 of the Employment Agreement extend
beyond the Termination Date. In the event that any provision of this Agreement
conflicts with Section 6 of the Employment Agreement, the terms and provisions
of the section(s) providing the greatest protection to the Company and its
Related Entities shall control.

               (c) Indemnification Agreement and Indemnification.
Notwithstanding the termination of the Employment Agreement or any provision of
this Agreement, the Executive and the Company acknowledge and agree that the
Commerce Indemnification Agreement shall remain in full force and effect in
accordance with its terms.

          12. Release by the Executive. Except as otherwise expressly provided
in this Agreement, the Executive, for himself and his heirs, executors,
administrators, assigns, affiliates, successors and agents (collectively, the
"Executive's Affiliates") hereby fully and without limitation releases and
forever discharges the Company and its Related Entities, and each of their
respective agents, representatives, shareholders, owners, officers, directors,
employees, consultants, attorneys, auditors, accountants, investigators,
affiliates, successors and assigns (collectively, the "Company Releasees"), both
individually and collectively, from any and all waivable rights, claims,
demands, liabilities, actions, causes of action, damages, losses, costs,
expenses and compensation, of whatever nature whatsoever, known or unknown,
fixed or contingent, which the Executive or any of the Executive's Affiliates
has or may have or may claim to have against the Company Releasees by reason of
any matter, cause, or thing whatsoever, from the beginning of time to the
Effective Date ("Claims"), including, without limiting the generality of the
foregoing, any Claims arising out of, based upon, or relating to the
recruitment, hiring, employment, relocation, remuneration, investigation, or
termination of the Executive by any of the Company Releasees, the Executive's
tenure as an employee and/or an officer of any of the Company Releasees, any
agreement or compensation arrangement between the Executive and any of the
Company Releasees (including, without limitation, the Employment Agreement), or
any act or occurrence in connection with any actual, existing, proposed,
prospective or claimed ownership interest of any nature of the Executive or the
Executive's Affiliates in equity capital or rights in equity capital or other
securities of any of the Company Releasees, to the maximum extent permitted by
law. The Executive specifically and expressly releases any Claims arising out of
or based on: the California Fair Employment and Housing Act, as amended; Title
VII of the Civil Rights Act of 1964, as amended; the Americans With Disabilities
Act; the National Labor Relations Act, as amended; the Equal Pay Act; ERISA; any
provision of the California Labor Code; the California common law on fraud,
misrepresentation, negligence, defamation, infliction of emotional distress or
other tort, breach of contract or


                                      -3-



covenant, violation of public policy or wrongful termination; state or federal
wage and hour laws; or any other state or federal law, rule or regulation
dealing with the employment relationship or operating a publicly held business.
Nothing contained in this Section 12 or any other provision of this Agreement
shall release or waive any right that Executive has to indemnification and/or
reimbursement of expenses by the Company with respect to which Executive may be
eligible as provided in Section 11(c), above, or shall prohibit Executive from
filing or participating in the investigations of a charge or complaint with any
state or federal agency.

          13. Waiver of Civil Code Section 1542.

               (a) The Executive understands and agrees that the release
provided herein extends to all Claims released above whether known or unknown,
suspected or unsuspected. The Executive expressly waives and relinquishes any
and all rights he may have under California Civil Code Section 1542, which
provides as follows:

          "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
          NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF
          EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE
          MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR."

               (b) The Executive expressly waives and releases any rights and
benefits which he has or may have under any similar law or rule of any other
jurisdiction. It is the intention of each party through this Agreement to fully,
finally and forever settle and release the Claims as set forth above. In
furtherance of such intention, the release herein given shall be and remain in
effect as a full and complete release of such matters notwithstanding the
discovery of any additional Claims or facts relating thereto.

          14. [IF AGE 40 OR OVER ON THE TERMINATION DATE: Release of Federal Age
Discrimination Claims by the Executive. The Executive hereby knowingly and
voluntarily waives and releases all rights and claims, known or unknown, arising
under the Age Discrimination In Employment Act of 1967, as amended, which he
might otherwise have had against the Company or any of the Company Releasees
regarding any actions which occurred prior to the Effective Date.]

          15. [IF AGE 40 OR OVER ON TERMINATION DATE: Rights Under the Older
Workers Benefit Protection Act. In accordance with the Older Workers Benefit
Protection Act of 1990, the Executive hereby is advised of the following:

               (a) The Executive has the right to consult with an attorney
before signing this Agreement and is encouraged by the Company to do so;

               (b) The Executive has twenty-one (21) days from his receipt of
this Agreement to consider it; and


                                      -4-



               (c) The Executive has seven (7) days after signing this Agreement
to revoke Sections 9, 12 and 14 of this Agreement (which must be revoked in
their entirety and as a group), and such Sections of this Agreement (as a group)
will not be effective until that revocation period has expired without exercise.
The Executive agrees that in order to exercise his right to revoke this
Agreement within such seven (7) day period, he must do so in a signed writing
delivered to the Company's Chief Executive Officer before the close of business
on the seventh calendar day after he signs this Agreement.]

          16. Confidentiality of Agreement. After the execution of this
Agreement by the Executive, neither the Executive, his attorney, nor any person
acting by, through, under or in concert with them, shall disclose any of the
terms of or amount paid under this Agreement (other than to state that the
Company has filed this Agreement and/or agreements related thereto as public
documents) or the negotiation thereof to any individual or entity; provided,
however, that the foregoing shall not prevent such disclosures by the Executive
to his attorney, tax advisors and/or immediate family members, or as may be
required by law.

          17. No Filings. The Executive represents that he has not filed any
lawsuits or waivable claims, charges or complaints against the Company Releasees
with any local, state or federal agency or court from the beginning of time to
the date of execution of this Agreement; that he will not do so at any time
hereafter based upon events prior to the date of execution of this Agreement;
that he will not induce, encourage, solicit or assist any other person or entity
to file or pursue any proceeding of any kind against the Company Releasees or
voluntarily appear or invite a subpoena to testify in any such legal proceeding;
and that, if any such agency or court ever assumes jurisdiction over any such
lawsuit, claim, charge or complaint and/or purports to bring any legal
proceeding, in whole or in part, on behalf of the Executive based upon events
occurring prior to the execution of this Agreement, the Executive will request
such agency or court to withdraw from and/or to dismiss the lawsuit, claim,
charge or complaint with prejudice. [IF AGE 40 OR OVER ON TERMINATION DATE: This
Section 17 shall not prohibit the Executive from challenging the validity of the
ADEA release in Section 14 of this Agreement.] It shall not be a breach of this
Section 17 for Executive to testify truthfully in any judicial or administrative
proceeding.

          18. Confidential and Proprietary Information. The Executive
acknowledges that certain information, observations and data obtained by him
during the course of or related to his employment with the Company and its
Related Entities (including, without limitation, information concerning the
legal strategies of the Company and its Related Entities, projection programs,
business plans, business matrix programs (i.e., measurement of business),
strategic financial projections, certain financial information, shareholder
information, product design information, marketing plans or proposals, personnel
information, customer lists and other customer information) are the sole
property of the Company and its Related Entities and constitute Confidential
Information as defined in Section 6 of the Employment Agreement. The Executive
represents and warrants that he has returned all files, customer lists,
financial information and other property of the Company and its Related Entities
that were in the Executive's possession or control without retaining copies
thereof. The Executive further represents and warrants that he does not have in
his possession or control any files, customer lists, financial information or
other property of the Company and its Related Entities. In addition to his
promises in Section 6 of the Employment Agreement, the Executive agrees that he
will not


                                      -5-



disclose to any person or use any such information, observations or data without
the written consent of the Chief Executive Officer or Board of Directors of the
Company. If the Executive is served with a deposition subpoena or other legal
process calling for the disclosure of such information, or if he is contacted by
any third person requesting such information, he will notify the Company's Chief
Executive Officer as soon as is reasonably practicable after receiving notice
and will cooperate with the Company and its Related Entities in minimizing the
disclosure thereof.

          19. Remedies. The Executive acknowledges that any unfair competition
or misuse of trade secret or Confidential Information belonging to the Company
and its Related Entities, or any violation of Section 6 of the Employment
Agreement, and any violation of Sections 16 and 18 of this Agreement, will
result in irreparable harm to the Company and its Related Entities, and
therefore, the Company and its Related Entities shall, in addition to any other
remedies, be entitled to immediate injunctive relief. To the extent there is any
conflict between Section 6 of the Employment Agreement and this Section 19, the
provision providing the greatest protection to the Company and its Related
Entities shall control. In addition, in the event of a breach of any provision
of this Agreement by the Executive, including Sections 16 and 18, the Executive
shall forfeit, and the Company and its Related Entities may cease paying, any
unpaid installments of the Severance Payment under Section 6 and payments for
continuation coverage under COBRA under Section 5, above, and the Company and
its Related Entities shall, without excluding other remedies available to them,
be entitled to an award in the amount of all COBRA continuation coverage
payments and installments of the Severance Payment made by the Company to the
Executive.

          20. Cooperation Clause.

               (a) To facilitate the orderly conduct of the Company and its
Related Entities' businesses, for the Severance Period, the Executive agrees to
cooperate, at no charge, with the Company and its Related Entities' reasonable
requests for information or assistance related to the time of his employment.

               (b) For the Severance Period, the Executive agrees to cooperate,
at no charge, with the Company's and its Related Entities' and its or their
counsel's reasonable requests for information or assistance related to (i) any
investigations (including internal investigations) and audits of the Company and
its Related Entities' management's current and past conduct and business and
accounting practices and (ii) the Company and its Related Entities' defense of,
or other participation in, any administrative, judicial, or other proceeding
arising from any charge, complaint or other action which has been or may be
filed relating to the period during which the Executive was engaged in
employment with the Company and its Related Entities. Except as required by law
or authorized in advance by the Board of Directors of the Company, the Executive
will not communicate, directly or indirectly, with any third party, including
any person or representative of any group of people or entity who is suing or
has indicated that a legal action against the Company and its Related Entities
or any of their directors or officers is being contemplated, concerning the
management or governance of the Company and its Related Entities, the operations
of the Company and its Related Entities, the legal positions taken by the
Company and its Related Entities, or the financial status of the Company and its
Related Entities. If asked about any such individuals or matters, the Executive
shall say:


                                      -6-



"I have no comment," and shall direct the inquirer to the Company. The Executive
acknowledges that any violation of this Section 20 will result in irreparable
harm to the Company and its Related Entities and will give rise to an immediate
action by the Company and its Related Entities for injunctive relief.

          21. No Future Employment. The Executive understands that his
employment with the Company and its Related Entities will irrevocably end as of
the Termination Date and will not be resumed at any time in the future. The
Executive agrees that he will not apply for, seek or accept employment by the
Company and its Related Entities at any time, unless invited to do so by the
Company and its Related Entities.

          22. Non-disparagement. The Executive agrees not to disparage or
otherwise publish or communicate derogatory statements about the Company and its
Related Entities and any director, officer or manager and/or the products and
services of these entities to any third party. It shall not be a breach of this
Section 22 for the Executive to testify truthfully in any judicial or
administrative proceeding, or to make factually accurate statements in legal or
public filings.

          23. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California, without giving effect to
principles of conflict of laws.

          24. Arbitration. The parties hereto agree that any future dispute of
any nature whatsoever between them, including, but not limited to, any claims of
statutory violations, contract or tort claims, or claims regarding any aspect of
this Agreement, its formation, validity, interpretation, effect, performance or
breach, or any act which allegedly has or would violate any provision of this
Agreement ("Arbitrable Dispute") will be submitted to arbitration in Orange
County, California, unless the parties agree to another location, before an
experienced employment arbitrator licensed to practice law in California and
selected in accordance with the rules of Judicial Arbitration and Mediation
Services, Inc. ("JAMS"), unless the parties agree to a different arbitrator, as
the exclusive remedy for any such Arbitrable Dispute. Should any party to this
Agreement hereafter institute any legal action or administrative proceeding
against the other with respect to any claim waived by this Agreement or pursue
any Arbitrable Dispute by any method other than said arbitration, the responding
party shall be entitled to recover from the initiating party all damages, costs,
expenses and attorneys' fees incurred as a result of such action. This Section
24 shall not restrict actions for equitable relief by the Company for violation
of Sections 16, 18 and 20 of this Agreement.

          25. Attorneys' Fees. Except as otherwise provided herein, in any
arbitration or other proceeding between the parties arising out of or in
relation to this Agreement, including any purported breach of this Agreement,
the prevailing party shall be entitled to an award of its costs and expenses,
including reasonable attorneys' fees.

          26. Non-Admission of Liability. The parties understand and agree that
neither the payment of any sum of money nor the execution of this Agreement by
the parties will constitute or be construed as an admission of any wrongdoing or
liability whatsoever by any party.


                                      -7-



          27. Severability. If any one or more of the provisions contained
herein (or parts thereof), or the application thereof in any circumstances, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity and enforceability of any such provision in every other respect and of
the remaining provisions hereof will not be in any way impaired or affected, it
being intended that all of the rights and privileges shall be enforceable to the
fullest extent permitted by law.

          28. Entire Agreement. This Agreement, together with the attachments
hereto, represents the sole and entire agreement among the parties and, except
as expressly stated herein, supersedes all prior agreements, negotiations and
discussions among the parties with respect to the subject matters contained
herein.

          29. Waiver. No waiver by any party hereto at any time of any breach
of, or compliance with, any condition or provision of this Agreement to be
performed by any other party hereto may be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or at any prior or
subsequent time.

          30. Amendment. This Agreement may be modified or amended only if such
modification or amendment is agreed to in writing and signed by duly authorized
representatives of the parties hereto, which writing expressly states the intent
of the parties to modify this Agreement.

          31. Counterparts. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original as against any
party that has signed it, but all of which together will constitute one and the
same instrument.

          32. Assignment. This Agreement inures to the benefit of and is binding
upon the Company and its successors and assigns, but the Executive's rights
under this Agreement are not assignable, except to his estate.

          33. Notice. All notices, requests, demands, claims and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (a) if personally delivered; (b) if sent by telecopy or facsimile
(except for legal process); or (c) if mailed by overnight or by first class,
certified or registered mail, postage prepaid, return receipt requested, and
properly addressed as follows:

     If to the Executive: Erik A. Lopez, Sr.
                          600 Anton Boulevard, Suite 2000
                          Costa Mesa, California 92626
                          Fax: (714) 481-6589

     If to the Company:   Commerce Energy Group, Inc
                          600 Anton Boulevard, Suite 2000
                          Costa Mesa, California 92626
                          Attn: Chief Executive Officer
                          Fax: (714) 481-6567


                                      -8-



Such addresses may be changed, from time to time, by means of a notice given in
the manner provided above. Notice will conclusively be deemed to have been given
when personally delivered (including, but not limited to, by messenger or
courier); or if given by mail, on the third day after being sent by first class,
certified or registered mail; or if given by Federal Express or other similar
overnight service, on the date of delivery; or if given by telecopy or facsimile
machine during normal business hours on a business day, when confirmation of
transmission is indicated by the sender's machine; or if given by telecopy or
facsimile machine at any time other than during normal business hours on a
business day, the first business day following when confirmation of transmission
is indicated by the sender's machine. Notices, requests, demands and other
communications delivered to legal counsel of any party hereto, whether or not
such counsel shall consist of in-house or outside counsel, shall not constitute
duly given notice to any party hereto.

          34. Miscellaneous Provisions.

               (a) The parties represent that they have read this Agreement and
fully understand all of its terms; that they have conferred with their
attorneys, or have knowingly and voluntarily chosen not to confer with their
attorneys about this Agreement; that they have executed this Agreement without
coercion or duress of any kind; and that they understand any rights that they
have or may have and sign this Agreement with full knowledge of any such rights.

               (b) Both parties have participated in the drafting of this
Agreement with the assistance of counsel to the extent they desired. The
language in all parts of this Agreement must be in all cases construed simply
according to its fair meaning and not strictly for or against any party.
Whenever the context requires, all words used in the singular must be construed
to have been used in the plural, and vice versa, and each gender must include
any other gender. The captions of the Sections of this Agreement are for
convenience only and must not affect the construction or interpretation of any
of the provision herein.

               (c) Each provision of this Agreement to be performed by a party
hereto is both a covenant and condition, and is a material consideration for the
other party's performance hereunder, and any breach thereof by the party will be
a material default hereunder. All rights, remedies, undertakings, obligations,
options, covenants, conditions and agreements contained in this Agreement are
cumulative and no one of them is exclusive of any other. Time is of the essence
in the performance of this Agreement.

               (d) Each party acknowledges that no representation, statement or
promise made by any other party, or by the agent or attorney of any other party,
except for those in this Agreement, has been relied on by him or it in entering
into this Agreement.

               (e) Each party understands that the facts with respect to which
this Agreement is entered into may be materially different from those the
parties now believe to be true. Except in the case where the existence of any
additional or different facts constitutes the breach of a representation or
warranty, each party accepts and assumes this risk and agrees that this
Agreement and the releases in it shall remain in full force and effect, and
legally binding,


                                      -9-



notwithstanding the discovery or existence of any additional or different facts,
or of any claims with respect to those facts.

               (f) Unless expressly set forth otherwise, all references herein
to a "day" are deemed to be a reference to a calendar day. All references to
"business day" mean any day of the year other than a Saturday, Sunday or a
public or bank holiday in Orange County, California. Unless expressly stated
otherwise, cross-references herein refer to provisions within this Agreement and
are not references to the overall transaction or to any other document.

               (g) Each party to this Agreement will cooperate fully in the
execution of any and all other documents and in the completion of any additional
actions that may be necessary or appropriate to give full force and effect to
the terms and intent of this Agreement.

     EACH OF THE PARTIES ACKNOWLEDGES THAT HE/IT HAS READ THIS AGREEMENT,
UNDERSTANDS IT AND IS VOLUNTARILY ENTERING INTO IT, AND THAT IT INCLUDES A
WAIVER OF THE RIGHT TO A TRIAL BY JURY, AND, WITH RESPECT TO THE EXECUTIVE, HE
UNDERSTANDS THAT THIS AGREEMENT INCLUDES A RELEASE OF ALL KNOWN AND UNKNOWN
CLAIMS.

     IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
dates indicated below.

"EXECUTIVE"


                                        ----------------------------------------
                                        ERIK A. LOPEZ, SR.

                                        Dated: ___________, 20__



"COMPANY"                               COMMERCE ENERGY GROUP, INC.,
                                        a Delaware corporation


                                        By:
                                            ------------------------------------
                                        Printed Name:
                                                      --------------------------
                                        Title:
                                               ---------------------------------
                                        Dated: ___________, 20__


                                      -10-



                                    EXHIBIT A

                              EMPLOYMENT AGREEMENT

                    [The Employment Agreement by and between
               Commerce Energy Group, Inc. and Erik A. Lopez, Sr.,
             dated as of March 26, 2007 (the "Employment Agreement")
         is the principal agreement to this set of exhibits of which the
             Separation and General Release Agreement is Exhibit C.
       That Agreement, in turn, refers back to the Employment Agreement.]



                                    EXHIBIT B

                            INDEMNIFICATION AGREEMENT

                    [A copy of the Indemnification Agreement
                       dated March 26, 2007 by and between
               Commerce Energy Group, Inc. and Erik A. Lopez, Sr.
              is attached as Exhibit D to the Employment Agreement
                   by and between Commerce Energy Group, Inc.
               and Erik A. Lopez, Sr. dated as of March 26, 2007.]



                                    EXHIBIT D

                            INDEMNIFICATION AGREEMENT

     This Indemnification Agreement (this "Agreement") is made and entered into
as of March 26, 2007, by and between Commerce Energy Group, Inc., a Delaware
corporation (the "Corporation"), and Erik A. Lopez, Sr., an individual
("Indemnitee").

                                    Recitals

     A. Indemnitee performs a valuable service to the Corporation in his
capacity as an officer of the Corporation.

     B. The Amended and Restated Certificate of Incorporation (the
"Certificate") and the Bylaws (the "Bylaws") of the Corporation provide for the
indemnification of the officers and directors of the Corporation as authorized
by the Delaware General Corporation Law, as amended (the "DGCL").

     C. The Certificate, the Bylaws and the DGCL, by their non-exclusive nature,
permit contracts between the Corporation and its directors, officers, employees
and other agents with respect to indemnification of such persons.

     D. In accordance with the authorization provided by the Certificate, the
Bylaws and the DGCL, the Corporation is entitled to purchase a policy or
policies of directors' and officers' liability insurance covering certain
liabilities which may be incurred by its directors and officers in the
performance of their duties to the Corporation.

     E. As a result of developments affecting the terms, scope and availability
of such insurance, there exists general uncertainty as to the extent of
protection afforded such persons by such Insurance and by statutory and bylaw
indemnification provisions.

     F. In order to induce Indemnitee to continue to serve as an officer of the
Corporation, the Corporation has determined and agreed to enter into this
Agreement with Indemnitee.

                                    Agreement

     1. Indemnity of Indemnitee. The Corporation shall hold harmless, indemnify
and advance expenses to Indemnitee as provided in this Agreement and to the
fullest extent authorized, permitted or required by the provisions of the
Certificate, the Bylaws and the DGCL, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than were permitted by the Certificate,
the Bylaws or the DGCL prior to adoption of such amendment); provided, however,
that the Corporation shall not indemnify Indemnitee in connection with any
proceeding, (or part thereof) initiated by Indemnitee, or any proceeding by
Indemnitee against the Corporation or its directors, officers, employees or
other agents, unless (i) such indemnification is expressly required to be made
by law, (ii) the proceeding, was authorized by the Board of Directors of the
Corporation, (iii) such indemnification is provided by the Corporation, in its
sole discretion, pursuant to the powers vested in the Corporation under the
DGCL, or (iv) the proceeding is initiated with respect to a proceeding to
enforce rights to indemnification pursuant to Section 8


                                       -1-



hereof. The rights of Indemnitee provided under the preceding sentence shall
include, but shall not be limited to, the rights set forth in the other sections
of this Agreement.

     2. Additional Indemnity. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 3 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Indemnitee:

          (a) Against all liabilities, losses, expenses (including attorney's
fees), judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement actually and reasonably incurred or suffered by Indemnitee in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, to which he is a party
or a witness, by reason of the fact that Indemnitee is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director or officer of another corporation or of a partnership,
joint venture, trust, enterprise or non-profit entity, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or agent
or in any other capacity while serving as a director, officer, employee or
agent.

          (b) Otherwise to the fullest extent as may be provided to Indemnitee
by the Corporation under the non-exclusivity provisions of the DGCL.

     3. Limitations on Additional Indemnity. No indemnity pursuant to Section 2
hereof shall be paid by the Corporation:

          (a) On account of any claim against Indemnitee for an accounting of
profits made from the purchase or sale by Indemnitee of securities of the
Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;

          (b) On account of Indemnitee's conduct that was knowingly fraudulent
or deliberately dishonest, or that constituted willful misconduct;

          (c) On account of, or attributable to, Indemnitee's conduct that
constituted a breach of Indemnitee's duty of loyalty to the Corporation, a
breach of Indemnitee's duties of professional responsibility to the Corporation
by accepting any subsequent employment as an attorney for any person, firm or
entity that is adverse to the Corporation, as this term is used in the rules of
professional conduct governing attorneys licensed to practice in California,
unless the Corporation has consented to such employment in advance, or resulted
in any personal profit or advantage to which Indemnitee was not legally
entitled;

          (d) For which payment has actually been made to Indemnitee under a
valid and collectible insurance policy or under a valid and enforceable
indemnity clause, bylaw or agreement, except in respect of any excess beyond
payment under such insurance, clause, bylaw or agreement;

          (e) The payment of which by the Corporation under this Agreement is
not permitted by applicable law;


                                       -2-



          (f) If indemnification is not lawful (and, in this respect, both the
Corporation and Indemnitee have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication) or is prohibited by any applicable state
securities laws with respect to any violation of applicable federal or state
securities laws; or

          (g) In connection with any proceeding, (or part thereof) initiated by
Indemnitee, or any proceeding by Indemnitee against the Corporation or its
directors, officers, employees or other agents, unless (i) such indemnification
is expressly required to be made by law, (ii) the proceeding, was authorized by
the Board of Directors of the Corporation, (iii) such indemnification is
provided by the Corporation, in its sole discretion, pursuant to the powers
vested in the Corporation under the DGCL, or (iv) the proceeding is initiated
pursuant to Section 8 hereof.

     4. Continuation of Indemnity. All agreements and obligations of the
Corporation contained herein shall continue during the period Indemnitee is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as
Indemnitee shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrative,
administrative or investigative, by reason of the fact that Indemnitee was (i) a
director of the Corporation or (ii) serving in any other capacity referred to
herein, and shall inure to the benefit of Indemnitee's heirs, executors and
administrators.

     5. Partial Indemnification. Indemnitee shall be entitled under this
Agreement to indemnification by the Corporation for a portion of the expenses
(including attorneys' fees), witness fees, damages, judgments, fines and amounts
paid in settlement and any other amounts that Indemnitee becomes legally
obligated to pay in connection with any action, suit or proceeding referred to
in Section 2 hereof even if not entitled hereunder to indemnification for the
total amount thereof, and the Corporation shall indemnify Indemnitee for the
portion thereof to which Indemnitee is entitled.

     6. Notification and Defense of Claim. Not later than thirty (30) days after
receipt by Indemnitee of notice of the commencement of any action, suit or
proceeding, Indemnitee will, if a claim in respect thereto is to be made against
the Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Indemnitee otherwise than under this
Agreement. With respect to any such action, suit or proceeding as to which
Indemnitee notifies the Corporation of the commencement thereof

          (a) The Corporation will be entitled to participate therein at its own
expense;

          (b) Except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Indemnitee. After


                                       -3-



notice from the Corporation to Indemnitee of its election to assume the defense
thereof, the Corporation will not be liable to Indemnitee under this Agreement
for any legal or other expenses subsequently incurred by Indemnitee in
connection with the defense thereof except for reasonable costs of investigation
or otherwise as provided below. Indemnitee shall have the right to employ
separate counsel in such action, suit or proceeding but the fees and expenses of
such counsel incurred after notice from the Corporation of its assumption of the
defense thereof shall be at the expense of Indemnitee unless (i) the employment
of counsel by Indemnitee has been authorized by the Corporation, (ii) Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Corporation and Indemnitee in the conduct of the defense of such action, or
(iii) the Corporation shall not in fact have employed counsel to assume the
defense of such action, in each of which cases the fees and expenses of
Indemnitee's separate counsel shall be at the expense of the Corporation. The
Corporation shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Corporation or as to which Indemnitee
shall have made the conclusion provided for in (ii) above; and

          (c) The Corporation shall not be liable to indemnify Indemnitee under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitee's written consent which may be given
or withheld in Indemnitee's sole discretion.

     7. Expenses. The Corporation shall pay the expenses incurred by Indemnitee
in defending any proceeding in advance of its final disposition, provided that,
to the extent required by the DGCL, the payment of expenses in advance of the
final disposition of the proceeding shall be made only upon receipt of an
undertaking by Indemnitee to repay all amounts advanced if it should be
ultimately determined by final judicial decision from which there is no further
right to appeal that Indemnitee is not entitled to be indemnified under this
Agreement or otherwise.

     8. Enforcement. Any right to indemnification or advances granted by this
Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee only
in the Chancery Court of the State of Delaware if (i) the claim for
indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within sixty (60) days of request therefor.
Indemnitee, in such enforcement action, if successful in whole or in part, shall
be entitled to be paid also the expense of prosecuting his claim. It shall be a
defense to any action for which a claim for indemnification is made under
Section 2 hereof (other than an action brought to enforce a claim for
advancement of expenses pursuant to Section 7 hereof, provided that the required
undertaking has been tendered to the Corporation) that Indemnitee is not
entitled to indemnification because of the limitations set forth in Section 3
hereof, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its Board of Directors or its
shareholders) to have made a determination prior to the commencement of such
enforcement action that indemnification of Indemnitee is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its shareholders) that such indemnification is improper,
shall be a defense to the action or create a presumption that Indemnitee is not
entitled to indemnification under this Agreement or otherwise.


                                      -4-



     9. Subrogation. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.

     10. Non Exclusivity of Rights. The rights conferred on Indemnitee by this
Agreement shall not be exclusive of any other right which Indemnitee may have or
hereafter acquire under any statute, provision of the Certificate, the Bylaws,
agreement, vote of shareholders or directors or otherwise, both as to action in
his official capacity and as to action in another capacity while holding office.

     11. Survival of Rights.

          (a) The rights conferred on Indemnitee by this Agreement shall
continue after Indemnitee has ceased to be a director, officer, employee or
other agent of the Corporation or to serve at the request of the Corporation as
a director, officer, employee or other agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise and
shall inure to the benefit of Indemnitee's heirs, executors and administrators.

          (b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.

     12. Severability. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify
Indemnitee to the fullest extent provided by the Certificate, the Bylaws, the
DGCL or any other applicable law.

     13. Consent to Jurisdiction. The Corporation and Indemnitee each hereby
irrevocably consent to the jurisdiction of the Court of the State of Delaware
for all purposes in connection with any action or proceeding, which arises out
of or relates to this Agreement, and agree that any action instituted under this
Agreement shall be brought only in the Chancery Courts of the State of Delaware.

     14. Governing Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.

     15. Amendment and Termination. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.

     16. Identical Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.


                                      -5-



     17. Headings. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.

     18. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such notice or other
communication shall have been directed, or (ii) if mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:

          (a)  If to Indemnitee, to:

               Erik A. Lopez, Sr.
               600 Anton Boulevard, Suite 2000
               Costa Mesa, CA 92626

          (b)  If to the Corporation, to:

               Commerce Energy Group, Inc.
               600 Anton Boulevard, Suite 2000
               Costa Mesa, CA 92626
               Attn: Chief Executive Officer

or to such other address(es) as may have been furnished to/by Indemnitee to/by
the Corporation.

IN WITNESS WHEREOF, the parties hereto have duly executed this Indemnification
Agreement as of the day and year first above written.


"Indemnitee"
                                        ----------------------------------------
                                        Erik A. Lopez, Sr.


"Corporation"                           COMMERCE ENERGY GROUP, INC., a Delaware
                                        corporation


                                        By:
                                            ------------------------------------
                                        Name: Steven S. Boss
                                        Title: Chief Executive Officer


                                      -6-

EX-10.4

EXHIBIT 10.4

INDEMNIFICATION AGREEMENT

     This Indemnification Agreement (this “Agreement”) is made and entered into as of March 26, 2007, by and between Commerce Energy Group, Inc., a Delaware corporation (the “Corporation”), and Erik A. Lopez, Sr., an individual (“Indemnitee”).

Recitals

     A. Indemnitee performs a valuable service to the Corporation in his capacity as an officer of the Corporation.

     B. The Amended and Restated Certificate of Incorporation (the “Certificate”) and the Bylaws (the “Bylaws”) of the Corporation provide for the indemnification of the officers and directors of the Corporation as authorized by the Delaware General Corporation Law, as amended (the “DGCL”).

     C. The Certificate, the Bylaws and the DGCL, by their non-exclusive nature, permit contracts between the Corporation and its directors, officers, employees and other agents with respect to indemnification of such persons.

     D. In accordance with the authorization provided by the Certificate, the Bylaws and the DGCL, the Corporation is entitled to purchase a policy or policies of directors’ and officers’ liability insurance covering certain liabilities which may be incurred by its directors and officers in the performance of their duties to the Corporation.

     E. As a result of developments affecting the terms, scope and availability of such insurance, there exists general uncertainty as to the extent of protection afforded such persons by such Insurance and by statutory and bylaw indemnification provisions.

     F. In order to induce Indemnitee to continue to serve as an officer of the Corporation, the Corporation has determined and agreed to enter into this Agreement with Indemnitee.

Agreement

     1. Indemnity of Indemnitee. The Corporation shall hold harmless, indemnify and advance expenses to Indemnitee as provided in this Agreement and to the fullest extent authorized, permitted or required by the provisions of the Certificate, the Bylaws and the DGCL, as the same may be amended from time to time (but, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than were permitted by the Certificate, the Bylaws or the DGCL prior to adoption of such amendment); provided, however, that the Corporation shall not indemnify Indemnitee in connection with any proceeding, (or part thereof) initiated by Indemnitee, or any proceeding by Indemnitee against the Corporation or its directors, officers, employees or other agents, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding, was authorized by the Board of Directors of the Corporation, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the DGCL, or (iv) the proceeding is initiated with respect to a proceeding to enforce rights to indemnification pursuant to Section 8

hereof. The rights of Indemnitee provided under the preceding sentence shall include, but shall not be limited to, the rights set forth in the other sections of this Agreement.

     2. Additional Indemnity. In addition to and not in limitation of the indemnification otherwise provided for herein, and subject only to the exclusions set forth in Section 3 hereof, the Corporation hereby further agrees to hold harmless and indemnify Indemnitee:

          (a) Against all liabilities, losses, expenses (including attorney’s fees), judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement actually and reasonably incurred or suffered by Indemnitee in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, to which he is a party or a witness, by reason of the fact that Indemnitee is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent.

          (b) Otherwise to the fullest extent as may be provided to Indemnitee by the Corporation under the non-exclusivity provisions of the DGCL.

     3. Limitations on Additional Indemnity. No indemnity pursuant to Section 2 hereof shall be paid by the Corporation:

          (a) On account of any claim against Indemnitee for an accounting of profits made from the purchase or sale by Indemnitee of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law;

          (b) On account of Indemnitee’s conduct that was knowingly fraudulent or deliberately dishonest, or that constituted willful misconduct;

          (c) On account of, or attributable to, Indemnitee’s conduct that constituted a breach of Indemnitee’s duty of loyalty to the Corporation, a breach of Indemnitee’s duties of professional responsibility to the Corporation by accepting any subsequent employment as an attorney for any person, firm or entity that is adverse to the Corporation, as this term is used in the rules of professional conduct governing attorneys licensed to practice in California, unless the Corporation has consented to such employment in advance, or resulted in any personal profit or advantage to which Indemnitee was not legally entitled;

          (d) For which payment has actually been made to Indemnitee under a valid and collectible insurance policy or under a valid and enforceable indemnity clause, bylaw or agreement, except in respect of any excess beyond payment under such insurance, clause, bylaw or agreement;

          (e) The payment of which by the Corporation under this Agreement is not permitted by applicable law;

-2-

          (f) If indemnification is not lawful (and, in this respect, both the Corporation and Indemnitee have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication) or is prohibited by any applicable state securities laws with respect to any violation of applicable federal or state securities laws; or

          (g) In connection with any proceeding, (or part thereof) initiated by Indemnitee, or any proceeding by Indemnitee against the Corporation or its directors, officers, employees or other agents, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding, was authorized by the Board of Directors of the Corporation, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the DGCL, or (iv) the proceeding is initiated pursuant to Section 8 hereof.

     4. Continuation of Indemnity. All agreements and obligations of the Corporation contained herein shall continue during the period Indemnitee is a director, officer, employee or other agent of the Corporation (or is or was serving at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and shall continue thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrative, administrative or investigative, by reason of the fact that Indemnitee was (i) a director of the Corporation or (ii) serving in any other capacity referred to herein, and shall inure to the benefit of Indemnitee’s heirs, executors and administrators.

     5. Partial Indemnification. Indemnitee shall be entitled under this Agreement to indemnification by the Corporation for a portion of the expenses (including attorneys’ fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that Indemnitee becomes legally obligated to pay in connection with any action, suit or proceeding referred to in Section 2 hereof even if not entitled hereunder to indemnification for the total amount thereof, and the Corporation shall indemnify Indemnitee for the portion thereof to which Indemnitee is entitled.

     6. Notification and Defense of Claim. Not later than thirty (30) days after receipt by Indemnitee of notice of the commencement of any action, suit or proceeding, Indemnitee will, if a claim in respect thereto is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the omission so to notify the Corporation will not relieve it from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Indemnitee notifies the Corporation of the commencement thereof

          (a) The Corporation will be entitled to participate therein at its own expense;

          (b) Except as otherwise provided below, the Corporation may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense, assume the defense thereof, with counsel reasonably satisfactory to Indemnitee. After

-3-

notice from the Corporation to Indemnitee of its election to assume the defense thereof, the Corporation will not be liable to Indemnitee under this Agreement for any legal or other expenses subsequently incurred by Indemnitee in connection with the defense thereof except for reasonable costs of investigation or otherwise as provided below. Indemnitee shall have the right to employ separate counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by the Corporation, (ii) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Corporation and Indemnitee in the conduct of the defense of such action, or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of Indemnitee’s separate counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation or as to which Indemnitee shall have made the conclusion provided for in (ii) above; and

          (c) The Corporation shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent, which shall not be unreasonably withheld. The Corporation shall be permitted to settle any action except that it shall not settle any action or claim in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee’s written consent which may be given or withheld in Indemnitee’s sole discretion.

     7. Expenses. The Corporation shall pay the expenses incurred by Indemnitee in defending any proceeding in advance of its final disposition, provided that, to the extent required by the DGCL, the payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by Indemnitee to repay all amounts advanced if it should be ultimately determined by final judicial decision from which there is no further right to appeal that Indemnitee is not entitled to be indemnified under this Agreement or otherwise.

     8. Enforcement. Any right to indemnification or advances granted by this Agreement to Indemnitee shall be enforceable by or on behalf of Indemnitee only in the Chancery Court of the State of Delaware if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within sixty (60) days of request therefor. Indemnitee, in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. It shall be a defense to any action for which a claim for indemnification is made under Section 2 hereof (other than an action brought to enforce a claim for advancement of expenses pursuant to Section 7 hereof, provided that the required undertaking has been tendered to the Corporation) that Indemnitee is not entitled to indemnification because of the limitations set forth in Section 3 hereof, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors or its shareholders) to have made a determination prior to the commencement of such enforcement action that indemnification of Indemnitee is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors or its shareholders) that such indemnification is improper, shall be a defense to the action or create a presumption that Indemnitee is not entitled to indemnification under this Agreement or otherwise.

-4-

     9. Subrogation. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights.

     10. Non Exclusivity of Rights. The rights conferred on Indemnitee by this Agreement shall not be exclusive of any other right which Indemnitee may have or hereafter acquire under any statute, provision of the Certificate, the Bylaws, agreement, vote of shareholders or directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office.

     11. Survival of Rights.

          (a) The rights conferred on Indemnitee by this Agreement shall continue after Indemnitee has ceased to be a director, officer, employee or other agent of the Corporation or to serve at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise and shall inure to the benefit of Indemnitee’s heirs, executors and administrators.

          (b) The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place.

     12. Severability. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. Furthermore, if this Agreement shall be invalidated in its entirety on any ground, then the Corporation shall nevertheless indemnify Indemnitee to the fullest extent provided by the Certificate, the Bylaws, the DGCL or any other applicable law.

     13. Consent to Jurisdiction. The Corporation and Indemnitee each hereby irrevocably consent to the jurisdiction of the Court of the State of Delaware for all purposes in connection with any action or proceeding, which arises out of or relates to this Agreement, and agree that any action instituted under this Agreement shall be brought only in the Chancery Courts of the State of Delaware.

     14. Governing Law. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware.

     15. Amendment and Termination. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto.

     16. Identical Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute but one and the same Agreement. Only one such counterpart need be produced to evidence the existence of this Agreement.

-5-

     17. Headings. The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof.

     18. Notices. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) upon delivery if delivered by hand to the party to whom such notice or other communication shall have been directed, or (ii) if mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed:

(a) If to Indemnitee, to:

Erik A. Lopez, Sr.
600 Anton Boulevard, Suite 2000
Costa Mesa, CA 92626

(b) If to the Corporation, to:

Commerce Energy Group, Inc.
600 Anton Boulevard, Suite 2000
Costa Mesa, CA 92626
Attn: Chief Executive Officer

or to such other address(es) as may have been furnished to/by Indemnitee to/by the Corporation.

IN WITNESS WHEREOF, the parties hereto have duly executed this Indemnification Agreement as of the day and year first above written.

“Indemnitee”	/S/ ERIK A. LOPEZ, SR.
	Erik A. Lopez, Sr.
“Corporation”	COMMERCE ENERGY GROUP, INC., a Delaware corporation
	By:	/S/ STEVEN S. BOSS
		Name:	Steven S. Boss
		Title:	Chief Executive Officer

-6-

EX-10.5

                                                                    EXHIBIT 10.5

                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

                        RESTRICTED SHARE AWARD AGREEMENT
                              (FOR U.S. EMPLOYEES)

                                   ----------

                                   AWARD NO. 3
                                  DATE 03/27/07

          In consideration of, and as a reward for, your past services rendered
to the Company and to provide you with an incentive for on-going superior
performance (which has a value exceeding the par value of the Restricted Shares
awarded pursuant to this Agreement), you are hereby awarded Restricted Shares
subject to the terms and conditions set forth in this Restricted Share Award
Agreement ("Award Agreement" or "Award"), and in the Commerce Energy Group, Inc.
2006 Stock Incentive Plan (the "Plan"), which is attached hereto as Exhibit A. A
summary of the Plan appears in its Prospectus, which is attached as Exhibit B.
You should carefully review these documents, and consult with your personal
financial advisor, in order to fully understand the implications of this Award,
including your tax alternatives and their consequences.

          By executing this Award Agreement, you agree to be bound by all of the
Plan's terms and conditions as if they had been set out verbatim in this Award
Agreement. In addition, you recognize and agree that all determinations,
interpretations, or other actions respecting the Plan and this Award Agreement
will be made by the Board of Directors (the "Board") of Commerce Energy Group,
Inc. (the "Company") or and Committee appointed by the Board to administer the
Plan, and shall (in the absence of manifest bad faith or fraud) be final,
conclusive and binding upon all parties, including you, your heirs and
representatives. Capitalized terms are defined in the Plan or in this Award
Agreement.

1. SPECIFIC TERMS. Your Restricted Shares have the following terms:

                        
Name of Participant        ERIK A. LOPEZ, SR.

Number of Shares           60,000
Subject to Award

Purchase Price per         Not applicable.
Share (if applicable)

Award Date                 March 27, 2007

Vesting                    20,000 Restricted Shares to vest on each of the
                           next three anniversaries of the Participant's
                           first date of employment, March 26, 2008, March
                           26, 2009 and March 26, 2010; subject to
                           acceleration as provided in the Plan, in Section 2
                           below, and in your employment agreement with the
                           Company dated March 26, 2007 and to your
                           Continuous Service not





Commerce Energy Group, Inc.
Restricted Shares Award Agreement
Page 2


                        
                           ending before the vesting date.

Lifetime Transfer          [X]  Allowed.   [ ]  Not allowed.

Deferral Elections         [X]  Allowed in accordance with Section 8(g) of the
                                Plan.

                           [ ]  Not allowed.



2. ACCELERATED VESTING; CHANGE IN CORPORATE CONTROL. To the extent you have not
previously vested in your rights with respect to this Award, your Award will
become -

     [ ]  ___% vested if your Continuous Service ends due to your death or
          "disability" within the meaning of Section 409A of the Code;

     [ ]  ___% vested if your Continuous Service ends due to your retirement
          at or after you have attained the age of ___ and completed at least
          ___ full years of Continuous Service;

     [ ]  according to the following schedule if your Continuous Service ends
          due to an Involuntary Termination that occurs within the one year
          period following a Change in Control:



Date on which Your Involuntary Termination        Portion of Your Award
  Occurs (by reference to Date of Award)     As to which Vesting Accelerates
- --------------------------------------       -------------------------------
                                          
Before 1st Anniversary                                       0%
Between 1st and 2nd Anniversary                            ___%
After 2nd Anniversary                                      ___%


3. INVESTMENT PURPOSES. You acknowledge that you are acquiring your Restricted
Shares for investment purposes only and without any present intention of selling
or distributing them.

4. ISSUANCE OF RESTRICTED SHARES. Until all vesting restrictions lapse, any
certificates that you receive for Restricted Shares will include a legend
stating that they are subject to the restrictions set forth in the Plan and this
Award Agreement. Certificates shall not be delivered to you unless you have made
arrangements satisfactory to the Committee to satisfy tax-withholding
obligations. The certificates evidencing such Restricted Shares that will be
issued will bear the following legend that shall remain in place and effective
until all other vesting restrictions lapse and new certificates are issued:

     "The sale or other transfer of the Stock represented by this certificate,
whether voluntary, involuntary, or by operation of law, is subject to certain
restrictions on transfer set forth in the Commerce Energy Group, Inc. 2006 Stock
Incentive Plan, and in any rules and administrative procedures adopted pursuant
to such Plan and in a related Award Agreement. A copy of the Plan, such rules
and procedures and such Award Agreement may be obtained from the Secretary of
Commerce Energy Group, Inc."

5. UNVESTED RESTRICTED SHARES. The Company will hold such Restricted Shares in
escrow until vesting occurs. You will be reflected as the owner of record on the
Company's books and



Commerce Energy Group, Inc.
Restricted Shares Award Agreement
Page 3


records of any Shares issued pursuant to this Award Agreement. The Company will
hold the stock certificates for safekeeping until such Shares have become vested
and non-forfeitable. You must deliver to the Company, as soon as practicable
after the date any Shares are issued, a stock power, endorsed in blank, with
respect to any such Shares. If you forfeit any Shares, the stock power will be
used to return the certificates for the forfeited Shares to the transfer agent
for cancellation. As the owner of record of any Restricted Shares you qualify to
receive pursuant to this Award Agreement, you will be entitled to all rights of
a stockholder of the Company, including the right to vote Shares; subject,
however, to the provisions of Section 6 hereof with respect to any cash or stock
dividends that are paid between the date of this Award and your receipt of
Shares pursuant to a vesting event, subject in each case to the treatment of the
Award upon termination of employment before the particular record date for
determining stockholders of record entitled to the payment of the dividend or
distribution. To the extent such dividend is paid in stock, such stock shall be
subject to the same restrictions contained in Section 1.

6. DIVIDENDS. When Shares are delivered to you or your duly-authorized
transferee pursuant to the vesting of the Shares, you or your duly-authorized
transferee shall also be entitled to receive, with respect to each Share issued,
an amount equal to any cash dividends (plus simple interest at a rate of five
percent per annum, or such other reasonable rate as the Committee may determine)
and a number of Shares equal to any stock dividends, which were declared and
paid to the holders of Shares between the Grant Date and the date such Share is
issued. To the extent that your Continuous Service ends before vesting of the
Shares, you will forfeit all dividends (whether paid in cash or in stock)
attributable to all such Shares.

7. LONG-TERM CONSIDERATION FOR AWARD. The Participant recognizes and agrees that
the Company's key consideration in granting this Award is securing the long-term
commitment of the Participant to serve an officer of the Company who will
advance and promote the business interests and objectives of the Company and/or
its Affiliates (the "Company Group"). Accordingly, the Participant agrees that
this Award shall be subject to the terms and conditions set forth in Section 25
of the Plan (relating to the termination, rescission and recapture if you
violate certain commitments made therein to the Company Group), as well as to
the following terms and conditions as material and indivisible consideration for
this Award:

          (a) Fiduciary Duty. During his or her employment with the Company
Group the Participant shall devote his or her full energies, abilities,
attention and business time to the performance of his or her job
responsibilities and shall not engage in any activity which conflicts or
interferes with, or in any way compromises, his or her performance of such
responsibilities.

          (b) Confidential Information. The Participant recognizes that by
virtue of his or her employment with the Company Group, he or she will be
granted otherwise prohibited access to confidential information and proprietary
data which are not known, and not readily accessible to the competitors of the
Company Group. This information (the "Confidential Information") includes, but
is not limited to, current and prospective customers; the identity of key
contacts at such customers; customers' particularized preferences and needs;
marketing strategies and plans; financial data; personnel data; compensation
data; proprietary procedures and processes; and other unique and specialized
practices, programs and plans of the Company Group and their respective
customers and prospective customers. The Participant recognizes that this
Confidential Information



Commerce Energy Group, Inc.
Restricted Shares Award Agreement
Page 4


constitutes a valuable property of the Company Group, developed over a
significant period of time and at substantial expense. Accordingly, the
Participant agrees that he or she shall not, at any time during or after his or
her employment with the Company Group, divulge such Confidential Information or
make use of it for his or her own purposes or the purposes of any person or
entity other than the Company Group.

          (c) Non-Solicitation of Customers. The Participant recognizes that by
virtue of his or her employment with the Company Group he or she will be
introduced to and involved in the solicitation and servicing of existing
customers of the Company Group and new customers obtained by the Company Group
during his or her employment. The Participant understands and agrees that all
efforts expended in soliciting and servicing such customers shall be for the
permanent benefit of the Company Group. The Participant further agrees that
during his or her employment with the Company Group the Participant will not
engage in any conduct which could in any way jeopardize or disturb any of the
customer relationships of the Company Group. The Participant also recognizes the
legitimate interest of the Company Group in protecting, for a reasonable period
of time after his or her employment with the Company Group, the customers of the
Company Group. Accordingly, the Participant agrees that, for a period beginning
on the date hereof and ending one (1) year after termination of Participant's
employment with the Company Group, regardless of the reason for such
termination, the Participant shall not, directly or indirectly, without the
prior written consent of the Chief Executive Officer of the Company, market,
offer, sell or otherwise furnish any products or services similar to, or
otherwise competitive with, those offered by the Company Group to any customer
of the Company Group.

          (d) Non-Solicitation of Employees. The Participant recognizes the
substantial expenditure of time and effort which the Company Group devotes to
the recruitment, hiring, orientation, training and retention of its employees.
Accordingly, the Participant agrees that, for a period beginning on the date
hereof and ending two (2) years after termination of Participant's employment
with the Company Group, regardless of the reason for such termination, the
Participant shall not, directly or indirectly, for himself or herself or on
behalf of any other person or entity, solicit, offer employment to, hire or
otherwise retain the services of any employee of the Company Group.

          (e) Survival of Commitments; Potential Recapture of Award and
Proceeds. The Participant acknowledges and agrees that the terms and conditions
of this Section regarding confidentiality and non-solicitation shall survive
both (i) the termination of Participant's employment with the Company Group for
any reason, and (ii) the termination of the Plan, for any reason. The
Participant acknowledges and agrees that the grant of Restricted Shares in this
Award Agreement is just and adequate consideration for the survival of the
restrictions set forth herein, and that the Company Group may pursue any or all
of the following remedies if the Participant either violates the terms of this
Section or succeeds for any reason in invalidating any part of it (it being
understood that the invalidity of any term hereof would result in a failure of
consideration for the Award):

          (i)  declaration that the Award is null and void and of no further
               force or effect;



Commerce Energy Group, Inc.
Restricted Shares Award Agreement
Page 5


          (ii) recapture of any cash paid or Shares issued to the Participant,
               or any designee or beneficiary of the Participant, pursuant to
               the Award;

          (iii) recapture of the proceeds, plus reasonable interest, with
               respect to any Shares that are both issued pursuant to this Award
               and sold or otherwise disposed of by the Participant, or any
               designee or beneficiary of the Participant.

The remedies provided above are not intended to be exclusive, and the Company
Group may seek such other remedies as are provided by law, including equitable
relief.

          (f) Acknowledgement. The Participant acknowledges and agrees that his
or her adherence to the foregoing requirements will not prevent him or her from
engaging in his or her chosen occupation and earning a satisfactory livelihood
following the termination of his or her employment with the Company Group.

8. SECTION 83(B) ELECTION NOTICE. If you make an election under Section 83(b) of
the Internal Revenue Code of 1986, as amended, with respect to the Shares
underlying your Restricted Shares (a "Section 83(b) election"), you agree to
provide a copy of such election to the Company within 10 days after filing that
election with the Internal Revenue Service. Exhibit C contains a suggested form
of Section 83(b) election.

9. DESIGNATION OF BENEFICIARY. Notwithstanding anything to the contrary
contained herein or in the Plan, following the execution of this Award
Agreement, you may expressly designate a beneficiary (the "Beneficiary") to your
interest, if any, in the Restricted Shares awarded hereby. You shall designate
the Beneficiary by completing and executing a designation of beneficiary
agreement substantially in the form attached hereto as Exhibit D (the
"Designation of Beneficiary") and delivering an executed copy of the Designation
of Beneficiary to the Company.

10. RESTRICTIONS ON TRANSFER. This Award Agreement may not be sold, pledged, or
otherwise transferred without the prior written consent of the Committee.
Notwithstanding the foregoing, the Participant may transfer this Award (i) by
instrument to an inter vivos or testamentary trust (or other entity) in which
each beneficiary is a permissible gift recipient, as such is set forth in
subsection (ii) of this Section, or (ii) by gift to charitable institutions or
by gift or transfer for consideration to any of the following relatives of the
Participant (or to an inter vivos trust, testamentary trust or other entity
primarily for the benefit of the following relatives of the Participant): any
child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former
spouse, domestic partner, sibling, niece, nephew, mother-in-law, father-in-law,
son-in-law, daughter-in-law, brother-in-law, or sister-in-law, and shall include
adoptive relationships. Any transferee of the Participant's rights shall succeed
and be subject to all of the terms of this Award Agreement and the Plan.

11. INCOME TAXES AND DEFERRED COMPENSATION. The Participant is solely
responsible and liable for the satisfaction of all taxes and penalties that may
arise in connection with this Award (including any taxes arising under Section
409A of the Code), and the Company shall not have any obligation to indemnify or
otherwise hold any Participant harmless from any or all of such taxes. The
Committee shall have the discretion to unilaterally modify this Award in a
manner that (i) conforms with the requirements of Section 409A of the Code, (ii)
that voids any election of the Participant to the extent it would violate
Section 409A of the Code, and (iii) for any distribution



Commerce Energy Group, Inc.
Restricted Shares Award Agreement
Page 6


election that would violate Section 409A of the Code, to make distributions
pursuant to the Award at the earliest to occur of a distribution event that is
allowable under Section 409A of the Code or any distribution event that is both
allowable under Section 409A of the Code and is elected by the Participant,
subject to any valid second election to defer, provided that the Committee
permits second elections to defer in accordance with Section 409A(a)(4)(C). The
Committee shall have the sole discretion to interpret the requirements of the
Code, including Section 409A, for purposes of the Plan and this Award Agreement.

12. NOTICES. Any notice or communication required or permitted by any provision
of this Award Agreement to be given to you shall be in writing and shall be
delivered personally or sent by certified mail, return receipt requested,
addressed to you at the last address that the Company had for you on its
records. Each party may, from time to time, by notice to the other party hereto,
specify a new address for delivery of notices relating to this Award Agreement.
Any such notice shall be deemed to be given as of the date such notice is
personally delivered or properly mailed.

13. BINDING EFFECT. Except as otherwise provided in this Award Agreement or in
the Plan, every covenant, term, and provision of this Award Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legatees, legal representatives, successors, transferees, and assigns.

14. MODIFICATIONS. This Award Agreement may be modified or amended at any time,
in accordance with Section 15 of the Plan and provided that you must consent in
writing to any modification that adversely alters or impairs any rights or
obligations under this Award Agreement.

15. HEADINGS. Section and other headings contained in this Award Agreement are
for reference purposes only and are not intended to describe, interpret, define
or limit the scope or intent of this Award Agreement or any provision hereof.

16. SEVERABILITY. Every provision of this Award Agreement and of the Plan is
intended to be severable. If any term hereof is illegal or invalid for any
reason, such illegality or invalidity shall not affect the validity or legality
of the remaining terms of this Award Agreement.

17. COUNTERPARTS. This Award Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.

18. PLAN GOVERNS. By signing this Award Agreement, you acknowledge that you have
received a copy of the Plan and that your Award Agreement is subject to all the
provisions contained in the Plan, the provisions of which are made a part of
this Award Agreement and your Award is subject to all interpretations,
amendments, rules and regulations which from time to time may be promulgated and
adopted pursuant to the Plan. In the event of a conflict between the provisions
of this Award Agreement and those of the Plan, the provisions of the Plan shall
control.

19. GOVERNING LAW. The laws of the State of Delaware shall govern the validity
of this Award Agreement, the construction of its terms, and the interpretation
of the rights and duties of the parties hereto.



Commerce Energy Group, Inc.
Restricted Shares Award Agreement
Page 7


20. NOT A CONTRACT OF EMPLOYMENT. By executing this Award Agreement you
acknowledge and agree that (i) any person who is terminated before full vesting
of an award, such as the one granted to you by this Award, could claim that he
or she was terminated to preclude vesting; (ii) you promise never to make such a
claim; (iii) nothing in this Award Agreement or the Plan confers on you any
right to continue an employment, service or consulting relationship with the
Company Group, nor shall it affect in any way your right or the right of the
Company Group, as applicable to terminate your employment, service, or
consulting relationship at any time, with or without Cause; and (iv) the Company
would not have granted this Award to you but for these acknowledgements and
agreements.

21. EMPLOYMENT AGREEMENT PROVISION By executing this Award, you acknowledge and
agree that your rights upon a termination of employment before full vesting of
this Award will be determined under Section 5 of your employment agreement with
the Company and Erik A. Lopez, Sr., dated as of March 26, 2007.

          BY YOUR SIGNATURE BELOW, along with the signature of the Company's
representative, you and the Company agree that the Restricted Shares are awarded
under and governed by the terms and conditions of this Award Agreement and the
Plan.

                                        COMMERCE ENERGY GROUP, INC.


                                        By: /S/ STEVEN S. BOSS
                                            ------------------------------------
                                        Name: Steven S. Boss
                                        Title: Chief Executive Officer


                                        PARTICIPANT

                                        The undersigned Participant hereby
                                        accepts the terms of this Award
                                        Agreement and the Plan.


                                        By: /S/ ERIK A. LOPEZ, SR.
                                            ------------------------------------
                                        Name of Participant: Erik A. Lopez, Sr.



                                                                       EXHIBIT A

                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

1. ESTABLISHMENT, PURPOSE, AND TYPES OF AWARDS

     Commerce Energy Group, Inc. (the "Company") hereby establishes this
equity-based incentive compensation plan to be known as the "Commerce Energy
Group, Inc. 2006 Stock Incentive Plan" (hereinafter referred to as the "Plan"),
in order to provide incentives and awards to select employees, directors,
consultants, and advisors of the Company and its Affiliates.

     The Plan permits the granting of the following types of awards ("Awards"),
according to the Sections of the Plan listed here:

     Section 6  Options
     Section 7  Share Appreciation Rights
     Section 8  Restricted Shares, Restricted Share Units, and Unrestricted
                Shares
     Section 9  Deferred Share Units
     Section 10 Performance Awards

     The Plan is not intended to affect and shall not affect any stock options,
equity-based compensation, or other benefits that the Company or its Affiliates
may have provided, or may separately provide in the future pursuant to any
agreement, plan, or program that is independent of this Plan.

2. DEFINED TERMS

     Terms in the Plan that begin with an initial capital letter have the
defined meaning set forth in APPENDIX A, unless defined elsewhere in this Plan
or the context of their use clearly indicates a different meaning.

3. SHARES SUBJECT TO THE PLAN

     Subject to the provisions of Section 13 of the Plan, the maximum number of
Shares that the Company may issue for all Awards is 1,453,334 Shares, provided
that the Company shall not make additional awards under the Commonwealth Energy
Corporation 1999 Equity Incentive Plan, as amended and assumed by Commerce
Energy Group, Inc. For all Awards, the Shares issued pursuant to the Plan may be
authorized but unissued Shares, or Shares that the Company has reacquired or
otherwise holds in treasury.

     Shares that are subject to an Award that for any reason expires, is
forfeited, is cancelled, or becomes unexercisable, and Shares that are for any
other reason not paid or delivered under the Plan shall again, except to the
extent prohibited by Applicable Law, be available for subsequent Awards under
the Plan. In addition, the Committee may make future Awards with respect to
Shares that the Company retains from otherwise delivering pursuant to an Award
either (i) as payment of the exercise price of an Award, or (ii) in order to
satisfy the withholding or employment taxes due upon the grant, exercise,
vesting or distribution of an Award. Notwithstanding the foregoing, but subject
to adjustments pursuant to Section 13 below, the number of Shares that are
available for ISO Awards shall be determined, to the extent required under
applicable tax laws, by reducing the number of Shares designated in the
preceding paragraph by the number of Shares granted pursuant to Awards (whether
or not Shares are issued pursuant to such Awards), provided that any Shares that
are either issued or purchased under the Plan and forfeited back to the Plan, or
surrendered in payment of the Exercise Price for an Award shall be available for
issuance pursuant to future ISO Awards.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 2


4. ADMINISTRATION

     (a) General. The Committee shall administer the Plan in accordance with its
terms, provided that the Board may act in lieu of the Committee on any matter.
The Committee shall hold meetings at such times and places as it may determine
and shall make such rules and regulations for the conduct of its business as it
deems advisable. In the absence of a duly appointed Committee or if the Board
otherwise chooses to act in lieu of the Committee, the Board shall function as
the Committee for all purposes of the Plan.

     (b) Committee Composition. The Board shall appoint the members of the
Committee. If and to the extent permitted by Applicable Law, the Committee may
authorize one or more Reporting Persons (or other officers) to make Awards to
Eligible Persons who are not Reporting Persons (or other officers whom the
Committee has specifically authorized to make Awards). The Board may at any time
appoint additional members to the Committee, remove and replace members of the
Committee with or without Cause, and fill vacancies on the Committee however
caused.

     (c) Powers of the Committee. Subject to the provisions of the Plan, the
Committee shall have the authority, in its sole discretion:

          (i) to determine Eligible Persons to whom Awards shall be granted from
     time to time and the number of Shares, units, or SARs to be covered by each
     Award;

          (ii) to determine, from time to time, the Fair Market Value of Shares;

          (iii) to determine, and to set forth in Award Agreements, the terms
     and conditions of all Awards, including any applicable exercise or purchase
     price, the installments and conditions under which an Award shall become
     vested (which may be based on performance), terminated, expired, cancelled,
     or replaced, and the circumstances for vesting acceleration or waiver of
     forfeiture restrictions, and other restrictions and limitations;

          (iv) to approve the forms of Award Agreements and all other documents,
     notices and certificates in connection therewith which need not be
     identical either as to type of Award or among Participants;

          (v) to construe and interpret the terms of the Plan and any Award
     Agreement, to determine the meaning of their terms, and to prescribe,
     amend, and rescind rules and procedures relating to the Plan and its
     administration; and

          (vi) in order to fulfill the purposes of the Plan and without amending
     the Plan, modify, cancel, or waive the Company's rights with respect to any
     Awards, to adjust or to modify Award Agreements for changes in Applicable
     Law, and to recognize differences in foreign law, tax policies, or customs;
     and

          (vii) to make all other interpretations and to take all other actions
     that the Committee may consider necessary or advisable to administer the
     Plan or to effectuate its purposes.

     Subject to Applicable Law and the restrictions set forth in the Plan, the
Committee may delegate administrative functions to individuals who are Reporting
Persons, officers, or Employees of the Company or its Affiliates.

     (d) Deference to Committee Determinations. The Committee shall have the
discretion to interpret or construe ambiguous, unclear, or implied (but omitted)
terms in any fashion it deems to be appropriate in its sole discretion, and to
make any findings of fact needed in the administration of the Plan or Award
Agreements. The Committee's prior exercise of its discretionary authority shall
not obligate it to exercise its authority in a like fashion thereafter. The
Committee's interpretation and construction of any provision of the Plan, or of
any Award or Award Agreement, shall be final, binding, and conclusive. The
validity of any such interpretation, construction, decision or finding of fact
shall not be given de novo review if challenged in court, by arbitration, or in
any other forum, and shall be upheld unless clearly made in bad faith or
materially affected by fraud.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 3


     (e) No Liability; Indemnification. Neither the Board nor any Committee
member, nor any Person acting at the direction of the Board or the Committee,
shall be liable for any act, omission, interpretation, construction or
determination made in good faith with respect to the Plan, any Award or any
Award Agreement. The Company and its Affiliates shall pay or reimburse any
member of the Committee, as well as any Director, Employee, or Consultant who
takes action in connection with the Plan, for all expenses incurred with respect
to the Plan, and to the full extent allowable under Applicable Law shall
indemnify each and every one of them for any claims, liabilities, and costs
(including reasonable attorney's fees) arising out of their good faith
performance of duties under the Plan. The Company and its Affiliates may obtain
liability insurance for this purpose.

5. ELIGIBILITY

     (a) General Rule. The Committee may grant ISOs only to Employees (including
officers who are Employees) of the Company or an Affiliate that is a "parent
corporation" or "subsidiary corporation" within the meaning of Section 424 of
the Code, and may grant all other Awards to any Eligible Person. A Participant
who has been granted an Award may be granted an additional Award or Awards if
the Committee shall so determine, if such person is otherwise an Eligible Person
and if otherwise in accordance with the terms of the Plan.

     (b) Grant of Awards. Subject to the express provisions of the Plan, the
Committee shall determine from the class of Eligible Persons those individuals
to whom Awards under the Plan may be granted, the number of Shares subject to
each Award, the price (if any) to be paid for the Shares or the Award and, in
the case of Performance Awards, in addition to the matters addressed in Section
10 below, the specific objectives, goals and performance criteria that further
define the Performance Award. Each Award shall be evidenced by an Award
Agreement signed by the Company and, if required by the Committee, by the
Participant. The Award Agreement shall set forth the material terms and
conditions of the Award established by the Committee, and each Award shall be
subject to the terms and conditions set forth in Sections 23, 24, and 25 unless
otherwise specifically provided in an Award Agreement.

     (c) Limits on Awards. During any calendar year, no Participant may receive
Options and SARs that relate to more than 1,000,000 Shares. The Committee will
adjust this limitation pursuant to Section 13 below.

     (d) Replacement Awards. Subject to Applicable Laws (including any
associated Shareholder approval requirements), the Committee may, in its sole
discretion and upon such terms as it deems appropriate, require as a condition
of the grant of an Award to a Participant that the Participant surrender for
cancellation some or all of the Awards that have previously been granted to the
Participant under this Plan or otherwise. An Award that is conditioned upon such
surrender may or may not be the same type of Award, may cover the same (or a
lesser or greater) number of Shares as such surrendered Award, may have other
terms that are determined without regard to the terms or conditions of such
surrendered Award, and may contain any other terms that the Committee deems
appropriate. In the case of Options, these other terms may not involve an
Exercise Price that is lower than the Exercise Price of the surrendered Option
unless the Company's shareholders approve the grant itself or the program under
which the grant is made pursuant to the Plan.

6. OPTION AWARDS

     (a) Types; Documentation. The Committee may in its discretion grant ISOs to
any Employee and Non-ISOs to any Eligible Person, and shall evidence any such
grants in an Award Agreement that is delivered to the Participant. Each Option
shall be designated in the Award Agreement as an ISO or a Non-ISO, and the same
Award Agreement may grant both types of Options. At the sole discretion of the
Committee, any Option may be exercisable, in whole or in part, immediately upon
the grant thereof, or only after the occurrence of a specified event, or only in
installments, which installments may vary. Options granted under the Plan may
contain such terms and provisions not inconsistent with the Plan that the
Committee shall deem advisable in its sole and absolute discretion.

     (b) ISO $100,000 Limitation. To the extent that the aggregate Fair Market
Value of Shares with respect to which Options designated as ISOs first become
exercisable by a Participant in any calendar year (under this Plan and any other
plan of the Company or any Affiliate) exceeds $100,000, such excess Options
shall be treated as Non-ISOs. For purposes of determining whether the $100,000
limit is exceeded, the Fair Market Value of the Shares subject to



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 4


an ISO shall be determined as of the Grant Date. In reducing the number of
Options treated as ISOs to meet the $100,000 limit, the most recently granted
Options shall be reduced first. In the event that Section 422 of the Code is
amended to alter the limitation set forth therein, the limitation of this
Section 6(b) shall be automatically adjusted accordingly.

     (c) Term of Options. Each Award Agreement shall specify a term at the end
of which the Option automatically expires, subject to earlier termination
provisions contained in Section 6(h) hereof; provided, that, the term of any
Option may not exceed ten years from the Grant Date. In the case of an ISO
granted to an Employee who is a Ten Percent Holder on the Grant Date, the term
of the ISO shall not exceed five years from the Grant Date.

     (d) Exercise Price. The exercise price of an Option shall be determined by
the Committee in its sole discretion and shall be set forth in the Award
Agreement, provided that (i) if an ISO is granted to an Employee who on the
Grant Date is a Ten Percent Holder, the per Share exercise price shall not be
less than 110% of the Fair Market Value per Share on the Grant Date, and (ii)
for all other Options, such per Share exercise price shall not be less than 100%
of the Fair Market Value per Share on the Grant Date. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of the federal securities laws applicable to proxy statement
disclosures.

     (e) Exercise of Option. The times, circumstances and conditions under which
an Option shall be exercisable shall be determined by the Committee in its sole
discretion and set forth in the Award Agreement. The Committee shall have the
discretion to determine whether and to what extent the vesting of Options shall
be tolled during any unpaid leave of absence; provided, however, that in the
absence of such determination, vesting of Options shall be tolled during any
such leave approved by the Company.

     (f) Minimum Exercise Requirements. An Option may not be exercised for a
fraction of a Share. The Committee may require in an Award Agreement that an
Option be exercised as to a minimum number of Shares, provided that such
requirement shall not prevent a Participant from purchasing the full number of
Shares as to which the Option is then exercisable.

     (g) Methods of Exercise. Prior to its expiration pursuant to the terms of
the applicable Award Agreement, and subject to the times, circumstances and
conditions for exercise contained in the applicable Award Agreement, each Option
may be exercised, in whole or in part (provided that the Company shall not be
required to issue fractional shares), by delivery of written notice of exercise
to the secretary of the Company accompanied by the full exercise price of the
Shares being purchased. In the case of an ISO, the Committee shall determine the
acceptable methods of payment on the Grant Date and it shall be included in the
applicable Award Agreement. The methods of payment that the Committee may in its
discretion accept or commit to accept in an Award Agreement include:

          (i) cash or check payable to the Company (in U.S. dollars);

          (ii) other Shares that (A) are owned by the Participant who is
     purchasing Shares pursuant to an Option, (B) have a Fair Market Value on
     the date of surrender equal to the aggregate exercise price of the Shares
     as to which the Option is being exercised, (C) were not acquired by such
     Participant pursuant to the exercise of an Option, unless such Shares have
     been owned by such Participant for at least six months or such other period
     as the Committee may determine, (D) are all, at the time of such surrender,
     free and clear of any and all claims, pledges, liens and encumbrances, or
     any restrictions which would in any manner restrict the transfer of such
     shares to or by the Company (other than such restrictions as may have
     existed prior to an issuance of such Shares by the Company to such
     Participant), and (E) are duly endorsed for transfer to the Company;

          (iii) a cashless exercise program that the Committee may approve, from
     time to time in its discretion, pursuant to which a Participant may
     concurrently provide irrevocable instructions (A) to such Participant's
     broker or dealer to effect the immediate sale of the purchased Shares and
     remit to the Company, out of the sale proceeds available on the settlement
     date, sufficient funds to cover the exercise price of the Option plus all
     applicable taxes required to be withheld by the Company by reason of such
     exercise, and (B) to the Company to deliver the certificates for the
     purchased Shares directly to such broker or dealer in order to complete the
     sale; or



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 5


          (iv) any combination of the foregoing methods of payment.

     The Company shall not be required to deliver Shares pursuant to the
exercise of an Option until payment of the full exercise price therefore is
received by the Company.

     (h) Termination of Continuous Service. The Committee may establish and set
forth in the applicable Award Agreement the terms and conditions on which an
Option shall remain exercisable, if at all, following termination of a
Participant's Continuous Service. The Committee may waive or modify these
provisions at any time. To the extent that a Participant is not entitled to
exercise an Option at the date of his or her termination of Continuous Service,
or if the Participant (or other person entitled to exercise the Option) does not
exercise the Option to the extent so entitled within the time specified in the
Award Agreement or below (as applicable), the Option shall terminate and the
Shares underlying the unexercised portion of the Option shall revert to the Plan
and become available for future Awards. In no event may any Option be exercised
after the expiration of the Option term as set forth in the Award Agreement.

     The following provisions shall apply to the extent an Award Agreement does
not specify the terms and conditions upon which an Option shall terminate when
there is a termination of a Participant's Continuous Service:

          (i) Termination other than Upon Disability or Death or for Cause. In
     the event of termination of a Participant's Continuous Service (other than
     as a result of Participant's death, disability, retirement or termination
     for Cause), the Participant shall have the right to exercise an Option at
     any time within 90 days following such termination to the extent the
     Participant was entitled to exercise such Option at the date of such
     termination.

          (ii) Disability. In the event of termination of a Participant's
     Continuous Service as a result of his or her being Disabled, the
     Participant shall have the right to exercise an Option at any time within
     one year following such termination to the extent the Participant was
     entitled to exercise such Option at the date of such termination.

          (iii) Retirement. In the event of termination of a Participant's
     Continuous Service as a result of Participant's retirement, the Participant
     shall have the right to exercise the Option at any time within six months
     following such termination to the extent the Participant was entitled to
     exercise such Option at the date of such termination.

          (iv) Death. In the event of the death of a Participant during the
     period of Continuous Service since the Grant Date of an Option, or within
     thirty days following termination of the Participant's Continuous Service,
     the Option may be exercised, at any time within one year following the date
     of the Participant's death, by the Participant's estate or by a person who
     acquired the right to exercise the Option by bequest or inheritance, but
     only to the extent the right to exercise the Option had vested at the date
     of death or, if earlier, the date the Participant's Continuous Service
     terminated.

          (v) Cause. If the Committee determines that a Participant's Continuous
     Service terminated due to Cause, the Participant shall immediately forfeit
     the right to exercise any Option, and it shall be considered immediately
     null and void.

     (i) Reverse Vesting. The Committee in its sole discretion may allow a
Participant to exercise unvested Options, in which case the Shares then issued
shall be Restricted Shares having analogous vesting restrictions to the unvested
Options.

     (j) Buyout Provisions. The Committee may at any time offer to buy out an
Option, in exchange for a payment in cash or Shares, based on such terms and
conditions as the Committee shall establish and communicate to the Participant
at the time that such offer is made.



Commerce Energy Group, Inc.
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Page 6


7. SHARE APPRECIATE RIGHTS (SARS)

     (a) Grants. The Committee may in its discretion grant Share Appreciation
Rights to any Eligible Person, in any of the following forms:

          (i) SARs related to Options. The Committee may grant SARs either
     concurrently with the grant of an Option or with respect to an outstanding
     Option, in which case the SAR shall extend to all or a portion of the
     Shares covered by the related Option. An SAR shall entitle the Participant
     who holds the related Option, upon exercise of the SAR and surrender of the
     related Option, or portion thereof, to the extent the SAR and related
     Option each were previously unexercised, to receive payment of an amount
     determined pursuant to Section 7(e) below. Any SAR granted in connection
     with an ISO will contain such terms as may be required to comply with the
     provisions of Section 422 of the Code and the regulations promulgated
     thereunder.

          (ii) SARs Independent of Options. The Committee may grant SARs which
     are independent of any Option subject to such conditions as the Committee
     may in its discretion determine, which conditions will be set forth in the
     applicable Award Agreement.

          (iii) Limited SARs. The Committee may grant SARs exercisable only upon
     or in respect of a Change in Control or any other specified event, and such
     limited SARs may relate to or operate in tandem or combination with or
     substitution for Options or other SARs, or on a stand-alone basis, and may
     be payable in cash or Shares based on the spread between the exercise price
     of the SAR, and (A) a price based upon or equal to the Fair Market Value of
     the Shares during a specified period, at a specified time within a
     specified period before, after or including the date of such event, or (B)
     a price related to consideration payable to Company's shareholders
     generally in connection with the event.

     (b) Exercise Price. The per Share exercise price of an SAR shall be
determined in the sole discretion of the Committee, shall be set forth in the
applicable Award Agreement, and shall be no less than 100% of the Fair Market
Value of one Share. The exercise price of an SAR related to an Option shall be
the same as the exercise price of the related Option. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of federal securities laws applicable to proxy statement
disclosures.

     (c) Exercise of SARs. Unless the Award Agreement otherwise provides, an SAR
related to an Option will be exercisable at such time or times, and to the
extent, that the related Option will be exercisable; provided that the Award
Agreement shall not, without the approval of the shareholders of the Company,
provide for a vesting period for the exercise of the SAR that is more favorable
to the Participant than the exercise period for the related Option. An SAR may
not have a term exceeding ten years from its Grant Date. An SAR granted
independently of any other Award will be exercisable pursuant to the terms of
the Award Agreement, but shall not, without the approval of the shareholders of
the Company, provide for a vesting period for the exercise of the SAR that is
more favorable to the Participant than the exercise period for the related
Option. Whether an SAR is related to an Option or is granted independently, the
SAR may only be exercised when the Fair Market Value of the Shares underlying
the SAR exceeds the exercise price of the SAR.

     (d) Effect on Available Shares. All SARs that may be settled in shares of
the Company's stock shall be counted in full against the number of shares
available for award under the Plan, regardless of the number of shares actually
issued upon settlement of the SARs.

     (e) Payment. Upon exercise of an SAR related to an Option and the attendant
surrender of an exercisable portion of any related Award, the Participant will
be entitled to receive payment of an amount determined by multiplying --

          (i) the excess of the Fair Market Value of a Share on the date of
     exercise of the SAR over the exercise price per Share of the SAR, by

          (ii) the number of Shares with respect to which the SAR has been
     exercised.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
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     Notwithstanding the foregoing, an SAR granted independently of an Option
(i) may limit the amount payable to the Participant to a percentage, specified
in the Award Agreement but not exceeding one-hundred percent (100%), of the
amount determined pursuant to the preceding sentence, and (ii) shall be subject
to any payment or other restrictions that the Committee may at any time impose
in its discretion, including restrictions intended to conform the SARs with
Section 409A of the Code.

     (f) Form and Terms of Payment. Subject to Applicable Law, the Committee
may, in its sole discretion, settle the amount determined under Section 7(e)
above solely in cash, solely in Shares (valued at their Fair Market Value on the
date of exercise of the SAR), or partly in cash and partly in Shares, with cash
paid in lieu of fractional shares. Unless otherwise provided in an Award
Agreement, all SARs shall be settled in Shares as soon as practicable after
exercise.

     (g) Termination of Employment or Consulting Relationship. The Committee
shall establish and set forth in the applicable Award Agreement the terms and
conditions on which an SAR shall remain exercisable, if at all, following
termination of a Participant's Continuous Service. The provisions of Section
6(h) above shall apply to the extent an Award Agreement does not specify the
terms and conditions upon which an SAR shall terminate when there is a
termination of a Participant's Continuous Service.

     (h) Buy out. The Committee has the same discretion to buy out SARs as it
has to take such actions pursuant to Section 6(j) above with respect to Options.

8. RESTRICTED SHARES, RESTRICTED SHARE UNITS, AND UNRESTRICTED SHARES

     (a) Grants. The Committee may in its sole discretion grant restricted
shares ("Restricted Shares") to any Eligible Person and shall evidence such
grant in an Award Agreement that is delivered to the Participant and that sets
forth the number of Restricted Shares, the purchase price for such Restricted
Shares (if any), and the terms upon which the Restricted Shares may become
vested. In addition, the Company may in its discretion grant the right to
receive Shares after certain vesting requirements are met ("Restricted Share
Units") to any Eligible Person and shall evidence such grant in an Award
Agreement that is delivered to the Participant which sets forth the number of
Shares (or formula, that may be based on future performance or conditions, for
determining the number of Shares) that the Participant shall be entitled to
receive upon vesting and the terms upon which the Shares subject to a Restricted
Share Unit may become vested. The Committee may condition any Award of
Restricted Shares or Restricted Share Units to a Participant on receiving from
the Participant such further assurances and documents as the Committee may
require to enforce the restrictions. In addition, the Committee may grant Awards
hereunder in the form of unrestricted shares ("Unrestricted Shares"), which
shall vest in full upon the date of grant or such other date as the Committee
may determine or which the Committee may issue pursuant to any program under
which one or more Eligible Persons (selected by the Committee in its sole
discretion) elect to receive Unrestricted Shares in lieu of cash bonuses that
would otherwise be paid.

     (b) Vesting and Forfeiture. The Committee shall set forth in an Award
Agreement granting Restricted Shares or Restricted Share Units, the terms and
conditions under which the Participant's interest in the Restricted Shares or
the Shares subject to Restricted Share Units will become vested and
non-forfeitable. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, upon termination of a Participant's Continuous
Service for any other reason, the Participant shall forfeit his or her
Restricted Shares and Restricted Share Units; provided that if a Participant
purchases the Restricted Shares and forfeits them for any reason, the Company
shall return the purchase price to the Participant only if and to the extent set
forth in an Award Agreement.

     (c) Issuance of Restricted Shares Prior to Vesting. The Company shall issue
stock certificates that evidence Restricted Shares pending the lapse of
applicable restrictions, and that bear a legend making appropriate reference to
such restrictions. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, the Company or a third party that the Company
designates shall hold such Restricted Shares and any dividends that accrue with
respect to Restricted Shares pursuant to Section 8(e) below.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 8


     (d) Issuance of Shares upon Vesting. As soon as practicable after vesting
of a Participant's Restricted Shares (or Shares underlying Restricted Share
Units) and the Participant's satisfaction of applicable tax withholding
requirements, the Company shall release to the Participant, free from the
vesting restrictions, one Share for each vested Restricted Share (or issue one
Share free of the vesting restriction for each vested Restricted Share Unit),
unless an Award Agreement provides otherwise. No fractional shares shall be
distributed, and cash shall be paid in lieu thereof.

     (e) Dividends Payable on Vesting. Whenever Shares are released to a
Participant or duly-authorized transferee pursuant to Section 8(d) above as a
result of the vesting of Restricted Shares or the Shares underlying Restricted
Share Units are issued to a Participant pursuant to Section 8(d) above, such
Participant or duly-authorized transferee shall also be entitled to receive
(unless otherwise provided in the Award Agreement), with respect to each Share
released or issued, an amount equal to any cash dividends (plus, in the sole
discretion of the Committee, simple interest at a rate as the Committee may
determine) and a number of Shares equal to any stock dividends, which were
declared and paid to the holders of Shares between the Grant Date and the date
such Share is released from the vesting restrictions in the case of Restricted
Shares or issued in the case of Restricted Share Units.

     (f) Section 83(b) Elections. A Participant may make an election under
Section 83(b) of the Code (the "Section 83(b) Election") with respect to
Restricted Shares. If a Participant who has received Restricted Share Units
provides the Committee with written notice of his or her intention to make a
Section 83(b) Election with respect to the Shares subject to such Restricted
Share Units, the Committee may in its discretion convert the Participant's
Restricted Share Units into Restricted Shares, on a one-for-one basis, in full
satisfaction of the Participant's Restricted Share Unit Award. The Participant
may then make a Section 83(b) Election with respect to those Restricted Shares.
Shares with respect to which a Participant makes a Section 83(b) Election shall
not be eligible for deferral pursuant to Section 9 below.

     (g) Deferral Elections. At any time within the thirty-day period (or other
shorter or longer period that the Committee selects in its sole discretion) in
which a Participant who is a member of a select group of management or highly
compensated employees (within the meaning of the Code) receives an Award of
either Restricted Shares or Restricted Share Units, the Committee may permit the
Participant to irrevocably elect, on a form provided by and acceptable to the
Committee, to defer the receipt of all or a percentage of the Shares that would
otherwise be transferred to the Participant upon the vesting of such Award. If
the Participant makes this election, the Shares subject to the election, and any
associated dividends and interest, shall be credited to an account established
pursuant to Section 9 hereof on the date such Shares would otherwise have been
released or issued to the Participant pursuant to Section 8(d) above.

9. DEFERRED SHARE UNITS

     (a) Elections to Defer. The Committee may permit any Eligible Person who is
a Director, Consultant or member of a select group of management or highly
compensated employees (within the meaning of the Code) to irrevocably elect, on
a form provided by and acceptable to the Committee (the "Election Form"), to
forego the receipt of cash or other compensation (including the Shares
deliverable pursuant to any Award other than Restricted Shares for which a
Section 83(b) Election has been made), and in lieu thereof to have the Company
credit to an internal Plan account (the "Account") a number of deferred share
units ("Deferred Share Units") having a Fair Market Value equal to the Shares
and other compensation deferred. These credits will be made at the end of each
calendar month during which compensation is deferred. Each Election Form shall
take effect on the first day of the next calendar year (or on the first day of
the next calendar month in the case of an initial election by a Participant who
first becomes eligible to defer hereunder) after its delivery to the Company,
subject to Section 8(g) regarding deferral of Restricted Shares and Restricted
Share Units and to Section 10(e) regarding deferral of Performance Awards,
unless the Company sends the Participant a written notice explaining why the
Election Form is invalid within five business days after the Company receives
it. Notwithstanding the foregoing sentence: (i) Election Forms shall be
ineffective with respect to any compensation that a Participant earns before the
date on which the Company receives the Election Form, and (ii) the Committee may
unilaterally make awards in the form of Deferred Share Units, regardless of
whether or not the Participant foregoes other compensation.


Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 9


     (b) Vesting. Unless an Award Agreement expressly provides otherwise, each
Participant shall be 100% vested at all times in any Shares subject to Deferred
Share Units.

     (c) Issuances of Shares. The Company shall provide a Participant with one
Share for each Deferred Share Unit in five substantially equal annual
installments that are issued before the last day of each of the five calendar
years that end after the date on which the Participant's Continuous Service
terminates, unless --

          (i) the Participant has properly elected a different form of
     distribution, on a form approved by the Committee, that permits the
     Participant to select any combination of a lump sum and annual installments
     that are completed within ten years following termination of the
     Participant's Continuous Service, and

          (ii) the Company received the Participant's distribution election form
     at the time the Participant elects to defer the receipt of cash or other
     compensation pursuant to Section 9(a), provided that such election may be
     changed through any subsequent election that (i) is delivered to the
     Company at least one year before the date on which distributions are
     otherwise scheduled to commence pursuant to the Participant's election, and
     (ii) defers the commencement of distributions by at least five years from
     the originally scheduled commencement date.

     Fractional shares shall not be issued, and instead shall be paid out in
cash.

     (d) Crediting of Dividends. Whenever Shares are issued to a Participant
pursuant to Section 9(c) above, such Participant shall also be entitled to
receive, with respect to each Share issued, a cash amount equal to any cash
dividends (plus simple interest at a rate of five percent per annum, or such
other reasonable rate as the Committee may determine), and a number of Shares
equal to any stock dividends which were declared and paid to the holders of
Shares between the Grant Date and the date such Share is issued.

     (e) Emergency Withdrawals. In the event a Participant suffers an
unforeseeable emergency within the contemplation of this Section and Section
409A of the Code, the Participant may apply to the Company for an immediate
distribution of all or a portion of the Participant's Deferred Share Units. The
unforeseeable emergency must result from a sudden and unexpected illness or
accident of the Participant, the Participant's spouse, or a dependent (within
the meaning of Section 152(a) of the Code) of the Participant, casualty loss of
the Participant's property, or other similar extraordinary and unforeseeable
conditions beyond the control of the Participant. Examples of purposes which are
not considered unforeseeable emergencies include post-secondary school expenses
or the desire to purchase a residence. In no event will a distribution be made
to the extent the unforeseeable emergency could be relieved through
reimbursement or compensation by insurance or otherwise, or by liquidation of
the Participant's nonessential assets to the extent such liquidation would not
itself cause a severe financial hardship. The amount of any distribution
hereunder shall be limited to the amount necessary to relieve the Participant's
unforeseeable emergency plus amounts necessary to pay taxes reasonably
anticipated as a result of the distribution. The Committee shall determine
whether a Participant has a qualifying unforeseeable emergency and the amount
which qualifies for distribution, if any. The Committee may require evidence of
the purpose and amount of the need, and may establish such application or other
procedures as it deems appropriate.

     (f) Unsecured Rights to Deferred Compensation. A Participant's right to
Deferred Share Units shall at all times constitute an unsecured promise of the
Company to pay benefits as they come due. The right of the Participant or the
Participant's duly-authorized transferee to receive benefits hereunder shall be
solely an unsecured claim against the general assets of the Company. Neither the
Participant nor the Participant's duly-authorized transferee shall have any
claim against or rights in any specific assets, shares, or other funds of the
Company.

10. PERFORMANCE AWARDS

     (a) Performance Units. Subject to the limitations set forth in paragraph
(c) hereof, the Committee may in its discretion grant Performance Units to any
Eligible Person and shall evidence such grant in an Award Agreement that is
delivered to the Participant which sets forth the terms and conditions of the
Award.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 10


    (b) Performance Compensation Awards. Subject to the limitations set forth in
paragraph (c) hereof, the Committee may, at the time of grant of a Performance
Unit, designate such Award as a "Performance Compensation Award" (payable in
cash or Shares) in order that such Award constitutes "qualified
performance-based compensation" under Code Section 162(m), in which event the
Committee shall have the power to grant such Performance Compensation Award upon
terms and conditions that qualify it as "qualified performance-based
compensation" within the meaning of Code Section 162(m). With respect to each
such Performance Compensation Award, the Committee shall establish, in writing
within the time required under Code Section 162(m), a "Performance Period,"
"Performance Measure(s)", and "Performance Formula(e)" (each such term being
hereinafter defined). Once established for a Performance Period, the Performance
Measure(s) and Performance Formula(e) shall not be amended or otherwise modified
to the extent such amendment or modification would cause the compensation
payable pursuant to the Award to fail to constitute qualified performance-based
compensation under Code Section 162(m).

     A Participant shall be eligible to receive payment in respect of a
Performance Compensation Award only to the extent that the Performance
Measure(s) for such Award is achieved and the Performance Formula(e) as applied
against such Performance Measure(s) determines that all or some portion of such
Participant's Award has been earned for the Performance Period. As soon as
practicable after the close of each Performance Period, the Committee shall
review and certify in writing whether, and to what extent, the Performance
Measure(s) for the Performance Period have been achieved and, if so, determine
and certify in writing the amount of the Performance Compensation Award to be
paid to the Participant and, in so doing, may use negative discretion to
decrease, but not increase, the amount of the Award otherwise payable to the
Participant based upon such performance.

     (c) Limitations on Awards. The maximum Performance Unit Award and the
maximum Performance Compensation Award that any one Participant may receive for
any one Performance Period shall not together exceed 1,000,000 Shares and
$1,000,000 in cash. The Committee shall have the discretion to provide in any
Award Agreement that any amounts earned in excess of these limitations will
either be credited as Deferred Share Units, or as deferred cash compensation
under a separate plan of the Company (provided in the latter case that such
deferred compensation either bears a reasonable rate of interest or has a value
based on one or more predetermined actual investments). Any amounts for which
payment to the Participant is deferred pursuant to the preceding sentence shall
be paid to the Participant in a future year or years not earlier than, and only
to the extent that, the Participant is either not receiving compensation in
excess of these limits for a Performance Period, or is not subject to the
restrictions set forth under Section 162(b) of the Code.

     (d) Definitions.

          (i) "Performance Formula" means, for a Performance Period, one or more
     objective formulas or standards established by the Committee for purposes
     of determining whether or the extent to which an Award has been earned
     based on the level of performance attained or to be attained with respect
     to one or more Performance Measure(s). Performance Formulae may vary from
     Performance Period to Performance Period and from Participant to
     Participant and may be established on a stand-alone basis, in tandem or in
     the alternative.

          (ii) "Performance Measure" means one or more of the following selected
     by the Committee to measure Company, Affiliate, and/or business unit
     performance for a Performance Period, whether in absolute or relative terms
     (including, without limitation, terms relative to a peer group or index):
     basic, diluted, or adjusted earnings per share; sales or revenue; earnings
     before interest, taxes, and other adjustments (in total or on a per share
     basis); basic or adjusted net income; returns on equity, assets, capital,
     revenue or similar measure; economic value added; working capital; total
     shareholder return; and product development, product market share,
     research, licensing, litigation, human resources, information services,
     mergers, acquisitions, sales of assets of Affiliates or business units.
     Each such measure shall be, to the extent applicable, determined in
     accordance with generally accepted accounting principles as consistently
     applied by the Company (or such other standard applied by the Committee)
     and, if so determined by the Committee, and in the case of a Performance
     Compensation Award, to the extent permitted under Code Section 162(m),
     adjusted to omit the effects of extraordinary items, gain or loss on the
     disposal of a business segment, unusual or infrequently occurring events
     and transactions and cumulative effects of changes in accounting
     principles. Performance Measures may vary from Performance Period to



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
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     Performance Period and from Participant to Participant, and may be
     established on a stand-alone basis, in tandem or in the alternative.

          (iii) "Performance Period" means one or more periods of time (of not
     less than one fiscal year of the Company), as the Committee may designate,
     over which the attainment of one or more Performance Measure(s) will be
     measured for the purpose of determining a Participant's rights in respect
     of an Award.

    (e) Deferral Elections. At any time prior to the date that is at least six
months before the close of a Performance Period (or shorter or longer period
that the Committee selects) with respect to an Award of either Performance Units
or Performance Compensation, the Committee may permit a Participant who is a
member of a select group of management or highly compensated employees (within
the meaning of the Code) to irrevocably elect, on a form provided by and
acceptable to the Committee, to defer the receipt of all or a percentage of the
cash or Shares that would otherwise be transferred to the Participant upon the
vesting of such Award. If the Participant makes this election, the cash or
Shares subject to the election, and any associated interest and dividends, shall
be credited to an account established pursuant to Section 9 hereof on the date
such cash or Shares would otherwise have been released or issued to the
Participant pursuant to Section 10(a) or Section 10(b) above.

11. TAXES

     (a) General. As a condition to the issuance or distribution of Shares
pursuant to the Plan, the Participant (or in the case of the Participant's
death, the person who succeeds to the Participant's rights) shall make such
arrangements as the Company may require for the satisfaction of any applicable
federal, state, local or foreign withholding tax obligations that may arise in
connection with the Award and the issuance of Shares. The Company shall not be
required to issue any Shares until such obligations are satisfied. If the
Committee allows the withholding or surrender of Shares to satisfy a
Participant's tax withholding obligations, the Committee shall not allow Shares
to be withheld in an amount that exceeds the minimum statutory withholding rates
for federal and state tax purposes, including payroll taxes.

     (b) Default Rule for Employees. In the absence of any other arrangement, an
Employee shall be deemed to have directed the Company to withhold or collect
from his or her cash compensation an amount sufficient to satisfy such tax
obligations from the next payroll payment otherwise payable after the date of
the exercise of an Award.

     (c) Special Rules. In the case of a Participant other than an Employee (or
in the case of an Employee where the next payroll payment is not sufficient to
satisfy such tax obligations, with respect to any remaining tax obligations), in
the absence of any other arrangement and to the extent permitted under
Applicable Law, the Participant shall be deemed to have elected to have the
Company withhold from the Shares or cash to be issued pursuant to an Award that
number of Shares having a Fair Market Value determined as of the applicable Tax
Date (as defined below) or cash equal to the amount required to be withheld. For
purposes of this Section 11, the Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined under the Applicable Law (the "Tax Date").

     (d) Surrender of Shares. If permitted by the Committee, in its discretion,
a Participant may satisfy the minimum applicable tax withholding and employment
tax obligations associated with an Award by surrendering Shares to the Company
(including Shares that would otherwise be issued pursuant to the Award) that
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld. In the case of Shares previously acquired from
the Company that are surrendered under this Section 11, such Shares must have
been owned by the Participant for more than six months on the date of surrender
(or such longer period of time the Company may in its discretion require).

     (e) Income Taxes and Deferred Compensation. Participants are solely
responsible and liable for the satisfaction of all taxes and penalties that may
arise in connection with Awards (including any taxes arising under Section 409A
of the Code), and the Company shall not have any obligation to indemnify or
otherwise hold any Participant harmless from any or all of such taxes. The
Committee shall have the discretion to organize any deferral program, to require
deferral election forms, and to grant or to unilaterally modify any Award in a
manner that (i) conforms with



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 12


the requirements of Section 409A of the Code with respect to compensation that
is deferred and that vests after December 31, 2004, (ii) that voids any
Participant election to the extent it would violate Section 409A of the Code,
and (iii) for any distribution election that would violate Section 409A of the
Code, to make distributions pursuant to the Award at the earliest to occur of a
distribution event that is allowable under Section 409A of the Code or any
distribution event that is both allowable under Section 409A of the Code and is
elected by the Participant, subject to any valid second election to defer,
provided that the Committee permits second elections to defer in accordance with
Section 409A(a)(4)(C). The Committee shall have the sole discretion to interpret
the requirements of the Code, including Section 409A, for purposes of the Plan
and all Awards.

12. NON-TRANSFERABILITY OF AWARDS

     (a) General. Except as set forth in this Section 12, or as otherwise
approved by the Committee, Awards may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent or distribution. The designation of a beneficiary by a
Participant will not constitute a transfer. An Award may be exercised, during
the lifetime of the holder of an Award, only by such holder, the duly-authorized
legal representative of a Participant who is Disabled, or a transferee permitted
by this Section 12.

     (b) Limited Transferability Rights. Notwithstanding anything else in this
Section 12, the Committee may in its discretion provide in an Award Agreement
that an Award other than an ISO may be transferred, on such terms and conditions
as the Committee deems appropriate, either (i) by instrument to the
Participant's "Immediate Family" (as defined below), (ii) by instrument to an
inter vivos or testamentary trust (or other entity) in which the Award is to be
passed to the Participant's designated beneficiaries, or (iii) by gift to
charitable institutions. Any transferee of the Participant's rights shall
succeed and be subject to all of the terms of the applicable Award Agreement and
the Plan. "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, and shall include adoptive relationships.

13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER
TRANSACTIONS

     (a) Changes in Capitalization. The Committee shall equitably adjust the
number of Shares covered by each outstanding Award, and the number of Shares
that have been authorized for issuance under the Plan but as to which no Awards
have yet been granted or that have been returned to the Plan upon cancellation,
forfeiture, or expiration of an Award, as well as the price per Share covered by
each such outstanding Award, to reflect any increase or decrease in the number
of issued Shares resulting from a stock-split, reverse stock-split, stock
dividend, combination, recapitalization or reclassification of the Shares, or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company. In the event of any such transaction or
event, the Committee may provide in substitution for any or all outstanding
Options under the Plan such alternative consideration (including securities of
any surviving entity) as it may in good faith determine to be equitable under
the circumstances and may require in connection therewith the surrender of all
Options so replaced. In any case, such substitution of securities shall not
require the consent of any person who is granted Options pursuant to the Plan.
Except as expressly provided herein, or in an Award Agreement, if the Company
issues for consideration shares of stock of any class or securities convertible
into shares of stock of any class, the issuance shall not affect, and no
adjustment by reason thereof shall be required to be made with respect to the
number or price of Shares subject to any Award.

     (b) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company other than as part of a Change of Control, each Award
will terminate immediately prior to the consummation of such action, subject to
the ability of the Committee to exercise any discretion authorized in the case
of a Change in Control.

     (c) Change in Control. In the event of a Change in Control, the Committee
may in its sole and absolute discretion and authority, without obtaining the
approval or consent of the Company's shareholders or any Participant with
respect to his or her outstanding Awards, take one or more of the following
actions:



Commerce Energy Group, Inc.
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          (i) arrange for or otherwise provide that each outstanding Award shall
     be assumed or a substantially similar award shall be substituted by a
     successor corporation or a parent or subsidiary of such successor
     corporation (the "Successor Corporation");

          (ii) accelerate the vesting of Awards so that Awards shall vest (and,
     to the extent applicable, become exercisable) as to the Shares that
     otherwise would have been unvested and provide that repurchase rights of
     the Company with respect to Shares issued upon exercise of an Award shall
     lapse as to the Shares subject to such repurchase right;

          (iii) arrange or otherwise provide for the payment of cash or other
     consideration to Participants in exchange for the satisfaction and
     cancellation of outstanding Awards;

          (iv) terminate upon the consummation of the transaction, provided that
     the Committee may in its sole discretion provide for vesting of all or some
     outstanding Awards in full as of a date immediately prior to consummation
     of the Change of Control. To the extent that an Award is not exercised
     prior to consummation of a transaction in which the Award is not being
     assumed or substituted, such Award shall terminate upon such consummation;
     or

          (v) make such other modifications, adjustments or amendments to
     outstanding Awards or this Plan as the Committee deems necessary or
     appropriate, subject however to the terms of Section 15(a) below.

     Notwithstanding the above, in the event a Participant holding an Award
assumed or substituted by the Successor Corporation in a Change in Control is
Involuntarily Terminated by the Successor Corporation in connection with, or
within 12 months following consummation of, the Change in Control, then any
assumed or substituted Award held by the terminated Participant at the time of
termination shall accelerate and become fully vested (and exercisable in full in
the case of Options and SARs), and any repurchase right applicable to any Shares
shall lapse in full, unless an Award Agreement provides for a more restrictive
acceleration or vesting schedule or more restrictive limitations on the lapse of
repurchase rights or otherwise places additional restrictions, limitations and
conditions on an Award. The acceleration of vesting and lapse of repurchase
rights provided for in the previous sentence shall occur immediately prior to
the effective date of the Participant's termination, unless an Award Agreement
provides otherwise.

     (d) Certain Distributions. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Committee may, in its discretion,
appropriately adjust the price per Share covered by each outstanding Award to
reflect the effect of such distribution.

14. TIME OF GRANTING AWARDS.

     The date of grant ("Grant Date") of an Award shall be the date on which the
Committee makes the determination granting such Award or such other date as is
determined by the Committee, provided that in the case of an ISO, the Grant Date
shall be the later of the date on which the Committee makes the determination
granting such ISO or the date of commencement of the Participant's employment
relationship with the Company.

15. MODIFICATION OF AWARDS AND SUBSTITUTION OF OPTIONS.

     (a) Modification, Extension, and Renewal of Awards. Within the limitations
of the Plan, the Committee may modify an Award to accelerate the rate at which
an Option or SAR may be exercised (including without limitation permitting an
Option or SAR to be exercised in full without regard to the installment or
vesting provisions of the applicable Award Agreement or whether the Option or
SAR is at the time exercisable, to the extent it has not previously been
exercised), to accelerate the vesting of any Award, to extend or renew
outstanding Awards or to accept the cancellation of outstanding Awards to the
extent not previously exercised. However, the Committee may not cancel an
outstanding option that is underwater for the purpose of reissuing the option to
the participant at a lower exercise price or granting a replacement award of a
different type. Notwithstanding the foregoing provision,



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 14


no modification of an outstanding Award shall materially and adversely affect
such Participant's rights thereunder, unless either the Participant provides
written consent or there is an express Plan provision permitting the Committee
to act unilaterally to make the modification.

     (b) Substitution of Options. Notwithstanding any inconsistent provisions or
limits under the Plan, in the event the Company or an Affiliate acquires
(whether by purchase, merger or otherwise) all or substantially all of
outstanding capital stock or assets of another corporation or in the event of
any reorganization or other transaction qualifying under Section 424 of the
Code, the Committee may, in accordance with the provisions of that Section,
substitute Options for options under the plan of the acquired company provided
(i) the excess of the aggregate fair market value of the shares subject to an
option immediately after the substitution over the aggregate option price of
such shares is not more than the similar excess immediately before such
substitution and (ii) the new option does not give persons additional benefits,
including any extension of the exercise period.

16. TERM OF PLAN.

     The Plan shall continue in effect for a term of ten (10) years from its
effective date as determined under Section 20 below, unless the Plan is sooner
terminated under Section 17 below.

17. AMENDMENT AND TERMINATION OF THE PLAN.

     (a) Authority to Amend or Terminate. Subject to Applicable Laws, the Board
may from time to time amend, alter, suspend, discontinue, or terminate the Plan.

     (b) Effect of Amendment or Termination. No amendment, suspension, or
termination of the Plan shall materially and adversely affect Awards already
granted unless either it relates to an adjustment pursuant to Section 13 above,
or it is otherwise mutually agreed between the Participant and the Committee,
which agreement must be in writing and signed by the Participant and the
Company. Notwithstanding the foregoing, the Committee may amend the Plan to
eliminate provisions which are no longer necessary as a result of changes in tax
or securities laws or regulations, or in the interpretation thereof.

18. CONDITIONS UPON ISSUANCE OF SHARES.

     Notwithstanding any other provision of the Plan or any agreement entered
into by the Company pursuant to the Plan, the Company shall not be obligated,
and shall have no liability for failure, to issue or deliver any Shares under
the Plan unless such issuance or delivery would comply with Applicable Law, with
such compliance determined by the Company in consultation with its legal
counsel.

19. RESERVATION OF SHARES.

     The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.

20. EFFECTIVE DATE.

     This Plan shall become effective on the date on which it has received
approval by a vote of a majority of the votes cast at a duly held meeting of the
Company's shareholders (or by such other shareholder vote that the Administrator
determines to be sufficient for the issuance of Shares or stock options
according to the Company's governing documents and applicable state law).

21. CONTROLLING LAW.

     All disputes relating to or arising from the Plan shall be governed by the
internal substantive laws (and not the laws of conflicts of laws) of the State
of Delaware, to the extent not preempted by United States federal law. If any



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 15


provision of this Plan is held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions shall continue to be fully
effective.

22. LAWS AND REGULATIONS.

     (a) U.S. Securities Laws. This Plan, the grant of Awards, and the exercise
of Options and SARs under this Plan, and the obligation of the Company to sell
or deliver any of its securities (including, without limitation, Options,
Restricted Shares, Restricted Share Units, Deferred Share Units, and Shares)
under this Plan shall be subject to all Applicable Law. In the event that the
Shares are not registered under the Securities Act of 1933, as amended (the
"Act"), or any applicable state securities laws prior to the delivery of such
Shares, the Company may require, as a condition to the issuance thereof, that
the persons to whom Shares are to be issued represent and warrant in writing to
the Company that such Shares are being acquired by him or her for investment for
his or her own account and not with a view to, for resale in connection with, or
with an intent of participating directly or indirectly in, any distribution of
such Shares within the meaning of the Act, and a legend to that effect may be
placed on the certificates representing the Shares.

     (b) Other Jurisdictions. To facilitate the making of any grant of an Award
under this Plan, the Committee may provide for such special terms for Awards to
Participants who are foreign nationals or who are employed by the Company or any
Affiliate outside of the United States of America as the Committee may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom. The Company may adopt rules and procedures relating to the operation and
administration of this Plan to accommodate the specific requirements of local
laws and procedures of particular countries. Without limiting the foregoing, the
Company is specifically authorized to adopt rules and procedures regarding the
conversion of local currency, taxes, withholding procedures and handling of
stock certificates which vary with the customs and requirements of particular
countries. The Company may adopt sub-plans and establish escrow accounts and
trusts as may be appropriate or applicable to particular locations and
countries.

23. NO SHAREHOLDER RIGHTS.

     Neither a Participant nor any transferee of a Participant shall have any
rights as a shareholder of the Company with respect to any Shares underlying any
Award until the date of issuance of a share certificate to a Participant or a
transferee of a Participant for such Shares in accordance with the Company's
governing instruments and Applicable Law. Prior to the issuance of Shares
pursuant to an Award, a Participant shall not have the right to vote or to
receive dividends or any other rights as a shareholder with respect to the
Shares underlying the Award, notwithstanding its exercise in the case of Options
and SARs. No adjustment will be made for a dividend or other right that is
determined based on a record date prior to the date the stock certificate is
issued, except as otherwise specifically provided for in this Plan.

24. NO EMPLOYMENT RIGHTS.

     The Plan shall not confer upon any Participant any right to continue an
employment, service or consulting relationship with the Company, nor shall it
affect in any way a Participant's right or the Company's right to terminate the
Participant's employment, service, or consulting relationship at any time, with
or without Cause.

25. TERMINATION, RESCISSION AND RECAPTURE.

     (a) Each Award under the Plan is intended to align the Participant's
long-term interest with those of the Company. If the Participant engages in
certain activities discussed below, either during employment or after employment
with the Company terminates for any reason, the Participant is acting contrary
to the long-term interests of the Company. Accordingly, except as otherwise
expressly provided in the Award Agreement, the Company may terminate any
outstanding, unexercised, unexpired, unpaid, or deferred Awards ("Termination"),
rescind any exercise, payment or delivery pursuant to the Award ("Rescission"),
or recapture any Common Stock (whether restricted or unrestricted) or proceeds
from the Participant's sale of Shares issued pursuant to the Award



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 16


("Recapture"), if the Participant does not comply with the conditions of
subsections (b) and (c) hereof (collectively, the "Conditions").

     (b) A Participant shall not, without the Company's prior written
authorization, disclose to anyone outside the Company, or use in other than the
Company's business, any proprietary or confidential information or material, as
those or other similar terms are used in any applicable patent, confidentiality,
inventions, secrecy, or other agreement between the Participant and the Company
with regard to any such proprietary or confidential information or material.

     (c) Pursuant to any agreement between the Participant and the Company with
regard to intellectual property (including but not limited to patents,
trademarks, copyrights, trade secrets, inventions, developments, improvements,
proprietary information, confidential business and personnel information), a
Participant shall promptly disclose and assign to the Company or its designee
all right, title, and interest in such intellectual property, and shall take all
reasonable steps necessary to enable the Company to secure all right, title and
interest in such intellectual property in the United States and in any foreign
country.

     (d) Upon exercise, payment, or delivery of cash or Common Stock pursuant to
an Award, the Participant shall certify on a form acceptable to the Company that
he or she is in compliance with the terms and conditions of the Plan and, if a
severance of Continuous Service has occurred for any reason, shall state the
name and address of the Participant's then-current employer or any entity for
which the Participant performs business services and the Participant's title,
and shall identify any organization or business in which the Participant owns a
greater-than-five-percent equity interest.

     (e) If the Company determines, in its sole and absolute discretion, that
(i) a Participant has violated any of the Conditions or (ii) during his or her
Continuous Service, or within one year after its termination for any reason, a
Participant (a) has rendered services to or otherwise directly or indirectly
engaged in or assisted, any organization or business that, in the judgment of
the Company in its sole and absolute discretion, is or is working to become
competitive with the Company; (b) has solicited any non-administrative employee
of the Company to terminate employment with the Company; or (c) has engaged in
activities which are materially prejudicial to or in conflict with the interests
of the Company, including any breaches of fiduciary duty or the duty of loyalty,
then the Company may, in its sole and absolute discretion, impose a Termination,
Rescission, and/or Recapture with respect to any or all of the Participant's
relevant Awards, Shares, and the proceeds thereof.

     (f) Within ten days after receiving notice from the Company of any such
activity, the Participant shall deliver to the Company the Shares acquired
pursuant to the Award, or, if Participant has sold the Shares, the gain
realized, or payment received as a result of the rescinded exercise, payment, or
delivery; provided, that if the Participant returns Shares that the Participant
purchased pursuant to the exercise of an Option (or the gains realized from the
sale of such Common Stock), the Company shall promptly refund the exercise
price, without earnings, that the Participant paid for the Shares. Any payment
by the Participant to the Company pursuant to this Section 21 shall be made
either in cash or by returning to the Company the number of Shares that the
Participant received in connection with the rescinded exercise, payment, or
delivery. It shall not be a basis for Termination, Rescission or Recapture if
after termination of a Participant's Continuous Service, the Participant
purchases, as an investment or otherwise, stock or other securities of such an
organization or business, so long as (i) such stock or other securities are
listed upon a recognized securities exchange or traded over-the-counter, and
(ii) such investment does not represent more than a five percent (5%) equity
interest in the organization or business.

     (g) Notwithstanding the foregoing provisions of this Section, the Company
has sole and absolute discretion not to require Termination, Rescission and/or
Recapture, and its determination not to require Termination, Rescission and/or
Recapture with respect to any particular act by a particular Participant or
Award shall not in any way reduce or eliminate the Company's authority to
require Termination, Rescission and/or Recapture with respect to any other act
or Participant or Award. Nothing in this Section shall be construed to impose
obligations on the Participant to refrain from engaging in lawful competition
with the Company after the termination of employment that does not violate
subsections (b) or (c) of this Section, other than any obligations that are part
of any separate agreement between the Company and the Participant or that arise
under applicable law.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 17


     (h) All administrative and discretionary authority given to the Company
under this Section shall be exercised by the most senior human resources
executive of the Company or such other person or committee (including without
limitation the Committee) as the Committee may designate from time to time.

     (i) Notwithstanding any provision of this Section, if any provision of this
Section is determined to be unenforceable or invalid under any applicable law,
such provision will be applied to the maximum extent permitted by applicable
law, and shall automatically be deemed amended in a manner consistent with its
objectives to the extent necessary to conform to any limitations required under
applicable law. Furthermore, if any provision of this Section is illegal under
any applicable law, such provision shall be null and void to the extent
necessary to comply with applicable law.

     Notwithstanding the foregoing, but subject to any contrary terms set forth
in any Award Agreement, this Section shall not be applicable: (i) to any
Participant who is not, on the Award Date, an Employee of the Company or its
Affiliates; and (ii) to any Participant from and after his or her termination of
Continuous Service after a Change in Control.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 18


                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                   ----------

                             APPENDIX A: DEFINITIONS

                                   ----------

     As used in the Plan, the following definitions shall apply:

     "AFFILIATE" means, with respect to any Person (as defined below), any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person or the power to elect directors, whether through the ownership of
voting securities, by contract or otherwise; and the terms "affiliated,"
"controlling" and "controlled" have meanings correlative to the foregoing.

     "APPLICABLE LAW" means the legal requirements relating to the
administration of options and share-based plans under applicable U.S. federal
and state laws, the Code, any applicable stock exchange or automated quotation
system rules or regulations, and the applicable laws of any other country or
jurisdiction where Awards are granted, as such laws, rules, regulations and
requirements shall be in place from time to time.

     "AWARD" means any award made pursuant to the Plan, including awards made in
the form of an Option, an SAR, a Restricted Share, a Restricted Share Unit, an
Unrestricted Share, a Deferred Share Unit, and a Performance Award, or any
combination thereof, whether alternative or cumulative, authorized by and
granted under this Plan.

     "AWARD AGREEMENT" means any written document setting forth the terms of an
Award that has been authorized by the Committee. The Committee shall determine
the form or forms of documents to be used, and may change them from time to time
for any reason.

     "BOARD" means the Board of Directors of the Company.

     "CAUSE" for termination of a Participant's Continuous Service will exist if
the Participant is terminated from employment or other service with the Company
or an Affiliate for any of the following reasons: (i) the Participant's willful
failure to substantially perform his or her duties and responsibilities to the
Company or deliberate violation of a material Company policy; (ii) the
Participant's commission of any material act or acts of fraud, embezzlement,
dishonesty, or other willful misconduct; (iii) the Participant's material
unauthorized use or disclosure of any proprietary information or trade secrets
of the Company or any other party to whom the Participant owes an obligation of
nondisclosure as a result of his or her relationship with the Company; or (iv)
Participant's willful and material breach of any of his or her obligations under
any written agreement or covenant with the Company.

    The Committee shall in its discretion determine whether or not a Participant
is being terminated for Cause. The Committee's determination shall, unless
arbitrary and capricious, be final and binding on the Participant, the Company,
and all other affected persons. The foregoing definition does not in any way
limit the Company's ability to terminate a Participant's employment or
consulting relationship at any time, and the term "Company" will be interpreted
herein to include any Affiliate or successor thereto, if appropriate.

     "CHANGE IN CONTROL" means any of the following:

          (i) Acquisition of Controlling Interest. Any Person becomes the
     Beneficial Owner, directly or indirectly, of securities of the Company
     representing 50% or more of the combined voting power of the Company's then
     outstanding securities. In applying the preceding sentence, (i) securities
     acquired directly from the Company or its Affiliates by or for the Person
     shall not be taken into account, and (ii) an agreement to vote securities
     shall be



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 19


     disregarded unless its ultimate purpose is to cause what would otherwise be
     a Change in Control, as reasonably determined by the Board.

          (ii) Change in Board Control. During a consecutive 2-year period
     commencing after the date of adoption of this Plan, individuals who
     constituted the Board at the beginning of the period (or their approved
     replacements, as defined in the next sentence) cease for any reason to
     constitute a majority of the Board. A new Director shall be considered an
     "approved replacement" Director if his or her election (or nomination for
     election) was approved by a vote of at least a majority of the Directors
     then still in office who either were Directors at the beginning of the
     period or were themselves approved replacement Directors, but in either
     case excluding any Director whose initial assumption of office occurred as
     a result of an actual or threatened solicitation of proxies or consents by
     or on behalf of any Person other than the Board.

          (iii) Merger. The Company consummates a merger, or consolidation of
     the Company with any other corporation unless: (a) the voting securities of
     the Company outstanding immediately before the merger or consolidation
     would continue to represent (either by remaining outstanding or by being
     converted into voting securities of the surviving entity) at least 50% of
     the combined voting power of the voting securities of the Company or such
     surviving entity outstanding immediately after such merger or
     consolidation; and (b) no Person becomes the Beneficial Owner, directly or
     indirectly, of securities of the Company representing 50% or more of the
     combined voting power of the Company's then outstanding securities.

          (iv) Sale of Assets. The stockholders of the Company approve an
     agreement for the sale or disposition by the Company of all, or
     substantially all, of the Company's assets.

          (v) Liquidation or Dissolution. The stockholders of the Company
     approve a plan or proposal for liquidation or dissolution of the Company.

     Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.

     "CODE" means the U.S. Internal Revenue Code of 1986, as amended.

     "COMMITTEE" means one or more committees or subcommittees of the Board
appointed by the Board to administer the Plan in accordance with Section 4
above. With respect to any decision involving an Award intended to satisfy the
requirements of Section 162(m) of the Code, the Committee shall consist of two
or more Directors of the Company who are "outside directors" within the meaning
of Section 162(m) of the Code. With respect to any decision relating to a
Reporting Person, the Committee shall consist of two or more Directors who are
disinterested within the meaning of Rule 16b-3.

     "COMPANY" means Commerce Energy Group, Inc., a Delaware corporation;
provided, however, that in the event the Company reincorporates to another
jurisdiction, all references to the term "Company" shall refer to the Company in
such new jurisdiction.

     "CONSULTANT" means any person, including an advisor, who is engaged by the
Company or any Affiliate to render services and is compensated for such
services.

     "CONTINUOUS SERVICE" means the absence of any interruption or termination
of service as an Employee, Director, or Consultant. Continuous Service shall not
be considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Committee, provided that such
leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; (iv)
changes in status from Director to advisory director or emeritus status; or (v)
in the case of transfers between locations of the Company or



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 20


between the Company, its Affiliates or their respective successors. Changes in
status between service as an Employee, Director, and a Consultant will not
constitute an interruption of Continuous Service.

     "DEFERRED SHARE UNITS" mean Awards pursuant to Section 9 of the Plan.

     "DIRECTOR" means a member of the Board, or a member of the board of
directors of an Affiliate.

     "DISABLED" means a condition under which a Participant --

          (a) is unable to engage in any substantial gainful activity by reason
     of any medically determinable physical or mental impairment which can be
     expected to result in death or can be expected to last for a continuous
     period of not less than 12 months, or

          (b) is, by reason of any medically determinable physical or mental
     impairment which can be expected to result in death or can be expected to
     last for a continuous period of not less than 12 months, received income
     replacement benefits for a period of not less than 3 months under an
     accident or health plan covering employees of the Company.

     "ELIGIBLE PERSON" means any Consultant, Director or Employee and includes
non-Employees to whom an offer of employment has been extended.

     "EMPLOYEE" means any person whom the Company or any Affiliate classifies as
an employee (including an officer) for employment tax purposes, whether or not
that classification is correct. The payment by the Company of a director's fee
to a Director shall not be sufficient to constitute "employment" of such
Director by the Company.

     "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

     "FAIR MARKET VALUE" means, as of any date (the "Determination Date") means:
(i) the closing price of a Share on the New York Stock Exchange or the American
Stock Exchange (collectively, the "Exchange"), on the Determination Date, or, if
shares were not traded on the Determination Date, then on the nearest preceding
trading day during which a sale occurred; or (ii) if such stock is not traded on
the Exchange but is quoted on NASDAQ or a successor quotation system, (A) the
last sales price (if the stock is then listed as a National Market Issue under
The Nasdaq National Market System) or (B) the mean between the closing
representative bid and asked prices (in all other cases) for the stock on the
Determination Date as reported by NASDAQ or such successor quotation system; or
(iii) if such stock is not traded on the Exchange or quoted on NASDAQ but is
otherwise traded in the over-the-counter, the mean between the representative
bid and asked prices on the Determination Date; or (iv) if subsections (i)-(iii)
do not apply, the fair market value established in good faith by the Board.

     "GRANT DATE" has the meaning set forth in Section 14 of the Plan.

     "INCENTIVE SHARE OPTION OR ISO" hereinafter means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable Award Agreement.

     "INVOLUNTARY TERMINATION" means termination of a Participant's Continuous
Service under the following circumstances occurring on or after a Change in
Control: (i) termination without Cause by the Company or an Affiliate or
successor thereto, as appropriate; or (ii) voluntary termination by the
Participant within 60 days following (A) a material reduction in the
Participant's job responsibilities, provided that neither a mere change in title
alone nor reassignment to a substantially similar position shall constitute a
material reduction in job responsibilities; (B) an involuntary relocation of the
Participant's work site to a facility or location more than 50 miles from the
Participant's principal work site at the time of the Change in Control; or (C) a
material reduction in Participant's total compensation other than as part of an
reduction by the same percentage amount in the compensation of all other
similarly-situated Employees, Directors or Consultants.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 21


     "NON-ISO" means an Option not intended to qualify as an ISO, as designated
in the applicable Award Agreement.

     "OPTION" means any stock option granted pursuant to Section 6 of the Plan.

     "PARTICIPANT" means any holder of one or more Awards, or the Shares
issuable or issued upon exercise of such Awards, under the Plan.

     "PERFORMANCE AWARDS" mean Performance Units and Performance Compensation
Awards granted pursuant to Section 10.

     "PERFORMANCE COMPENSATION AWARDS" mean Awards granted pursuant to Section
10(b) of the Plan.

     "PERFORMANCE UNIT" means Awards granted pursuant to Section 10(a) of the
Plan which may be paid in cash, in Shares, or such combination of cash and
Shares as the Committee in its sole discretion shall determine.

     "PERSON" means any natural person, association, trust, business trust,
cooperative, corporation, general partnership, joint venture, joint-stock
company, limited partnership, limited liability company, real estate investment
trust, regulatory body, governmental agency or instrumentality, unincorporated
organization or organizational entity.

     "PLAN" means this Commerce Energy Group, Inc. 2006 Stock Incentive Plan.

     "REPORTING PERSON" means an officer, Director, or greater than ten percent
shareholder of the Company within the meaning of Rule 16a-2 under the Exchange
Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange
Act.

     "RESTRICTED SHARES" mean Shares subject to restrictions imposed pursuant to
Section 8 of the Plan.

     "RESTRICTED SHARE UNITS" mean Awards pursuant to Section 8 of the Plan.

     "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act, as
amended from time to time, or any successor provision.

     "SAR" OR "SHARE APPRECIATION RIGHT" means Awards granted pursuant to
Section 7 of the Plan.

     "SHARE" means a share of common stock of the Company, par value $0.001, as
adjusted in accordance with Section 13 of the Plan.

     "TEN PERCENT HOLDER" means a person who owns stock representing more than
ten percent (10%) of the combined voting power of all classes of stock of the
Company or any Affiliate.

     "UNRESTRICTED SHARES" mean Shares awarded pursuant to Section 8 of the
Plan.



                                                                       EXHIBIT B

MEMORANDUM

                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                  COMMON STOCK
                               ($0.001 PAR VALUE)

          This Memorandum relates to shares of common stock, $0.001 par value
per share (the "Common Stock"), of Commerce Energy Group, Inc., a Delaware
corporation (the "Company"), issuable in satisfaction of awards made under
Commerce Energy Group, Inc.'s 2006 Stock Incentive Plan (the "Plan") to eligible
employees, consultants and directors of the Company. Stock options, share
appreciation rights, restricted shares, restricted share units, unrestricted
shares, deferred share units, performance shares and performance units may be
awarded under the Plan.

                                   ----------

                   The date of this Memorandum is May 8, 2006.

                                   ----------

  THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE
   BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS MEMORANDUM AND THE
  DOCUMENTS INCORPORATED BY REFERENCE IN THIS MEMORANDUM CONSTITUTE A SECTION
                   10(A) PROSPECTUS UNDER THE SECURITIES ACT.

                           COMMERCE ENERGY GROUP, INC.
                           600 Anton Blvd., Suite 200
                          Costa Mesa, California 92626



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 2


          This Memorandum does not constitute an offer to sell or a solicitation
of an offer to buy any securities other than the registered securities to which
it relates or an offer to sell or a solicitation of an offer to buy any
securities in any jurisdiction to any person to whom it is unlawful to make such
an offer or solicitation.

          Neither delivery of this Memorandum nor any sale made thereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company or in any information included therein, in
any supplement thereto or in any document incorporated by reference since the
date hereof or thereof.

                                     GENERAL

          This Memorandum relates to shares of common stock, $0.001 par value
per share (the "Common Stock"), of Commerce Energy Group, Inc., a Delaware
corporation (the "Company"), issuable in satisfaction of awards under the
Company's 2006 Stock Incentive Plan (the "Plan") to eligible employees,
consultants and directors of the Company. Stock options, share appreciation
rights, restricted shares, restricted share units, unrestricted shares, deferred
share units, performance shares and performance units may be awarded under the
Plan, though only employees may receive stock options classified as incentive
stock options ("ISOs") which are intended to satisfy the requirements of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). Options
awarded under the Plan may be either ISOs or non-qualified stock options
("non-ISOs") which are not intended to qualify as ISOs. Share appreciation
rights may be granted in tandem with options or as free-standing awards.
Options, share appreciation rights, restricted shares, restricted share units,
unrestricted shares, deferred shares, and performance awards vest in accordance
with the terms established by the committee administering the Plan, which may
include conditions relating to completion of a specified period of service or
achievement of performance standards.

          Any person deemed to be an "affiliate" of the Company may re-offer or
resell shares of Common Stock acquired pursuant to the Plan without registration
under the Securities Act of 1933, as amended (the "Act"), upon compliance with
Rule 144 under the Act. Participants who are not "affiliates" of the Company may
resell the shares of Common Stock acquired pursuant to the Plan without the need
to comply with Rule 144. For purposes of Rule 144, an "affiliate" of an issuer
is a person that directly or indirectly, through the use of one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer. Acquisitions of shares, exercises of options or other transactions
involving shares of Common Stock pursuant to the Plan by our directors,
executive officers or a 10% stockholder could be subject to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act").

          The Plan became effective as of January 26, 2006, the date that it was
approved by the Company's Stockholders. As currently operating, the Plan is not
qualified under Section 401(a) of the Code and is not subject to the provisions
of the Employee Retirement Income Security Act of 1974. The complete text of the
Plan appears below under the caption "2006 Stock Incentive Plan."

                            2006 STOCK INCENTIVE PLAN

1. ESTABLISHMENT, PURPOSE, AND TYPES OF AWARDS

     Commerce Energy Group, Inc. (the "Company") hereby establishes this
equity-based incentive compensation plan to be known as the "Commerce Energy
Group, Inc. 2006 Stock Incentive Plan"



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 3


(hereinafter referred to as the "Plan"), in order to provide incentives and
awards to select employees, directors, consultants, and advisors of the Company
and its Affiliates.

     The Plan permits the granting of the following types of awards ("Awards"),
according to the Sections of the Plan listed here:

     Section 6  Options
     Section 7  Share Appreciation Rights
     Section 8  Restricted Shares, Restricted Share Units, and Unrestricted
                Shares
     Section 9  Deferred Share Units
     Section 10 Performance Awards

     The Plan is not intended to affect and shall not affect any stock options,
equity-based compensation, or other benefits that the Company or its Affiliates
may have provided, or may separately provide in the future pursuant to any
agreement, plan, or program that is independent of this Plan.

2. DEFINED TERMS

     Terms in the Plan that begin with an initial capital letter have the
defined meaning set forth in APPENDIX A, unless defined elsewhere in this Plan
or the context of their use clearly indicates a different meaning.

3. SHARES SUBJECT TO THE PLAN

     Subject to the provisions of Section 13 of the Plan, the maximum number of
Shares that the Company may issue for all Awards is 1,453,334 Shares, provided
that the Company shall not make additional awards under the Commonwealth Energy
Corporation 1999 Equity Incentive Plan, as amended and assumed by Commerce
Energy Group, Inc. For all Awards, the Shares issued pursuant to the Plan may be
authorized but unissued Shares, or Shares that the Company has reacquired or
otherwise holds in treasury.

     Shares that are subject to an Award that for any reason expires, is
forfeited, is cancelled, or becomes unexercisable, and Shares that are for any
other reason not paid or delivered under the Plan shall again, except to the
extent prohibited by Applicable Law, be available for subsequent Awards under
the Plan. In addition, the Committee may make future Awards with respect to
Shares that the Company retains from otherwise delivering pursuant to an Award
either (i) as payment of the exercise price of an Award, or (ii) in order to
satisfy the withholding or employment taxes due upon the grant, exercise,
vesting or distribution of an Award. Notwithstanding the foregoing, but subject
to adjustments pursuant to Section 13 below, the number of Shares that are
available for ISO Awards shall be determined, to the extent required under
applicable tax laws, by reducing the number of Shares designated in the
preceding paragraph by the number of Shares granted pursuant to Awards (whether
or not Shares are issued pursuant to such Awards), provided that any Shares that
are either issued or purchased under the Plan and forfeited back to the Plan, or
surrendered in payment of the Exercise Price for an Award shall be available for
issuance pursuant to future ISO Awards.

4. ADMINISTRATION

     (a) General. The Committee shall administer the Plan in accordance with its
terms, provided that the Board may act in lieu of the Committee on any matter.
The Committee shall hold meetings at such times and places as it may determine
and shall make such rules and regulations for the conduct of its business as



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 4


it deems advisable. In the absence of a duly appointed Committee or if the Board
otherwise chooses to act in lieu of the Committee, the Board shall function as
the Committee for all purposes of the Plan.

     (b) Committee Composition. The Board shall appoint the members of the
Committee. If and to the extent permitted by Applicable Law, the Committee may
authorize one or more Reporting Persons (or other officers) to make Awards to
Eligible Persons who are not Reporting Persons (or other officers whom the
Committee has specifically authorized to make Awards). The Board may at any time
appoint additional members to the Committee, remove and replace members of the
Committee with or without Cause, and fill vacancies on the Committee however
caused.

     (c) Powers of the Committee. Subject to the provisions of the Plan, the
Committee shall have the authority, in its sole discretion:

          (i) to determine Eligible Persons to whom Awards shall be granted from
     time to time and the number of Shares, units, or SARs to be covered by each
     Award;

          (ii) to determine, from time to time, the Fair Market Value of Shares;

          (iii) to determine, and to set forth in Award Agreements, the terms
     and conditions of all Awards, including any applicable exercise or purchase
     price, the installments and conditions under which an Award shall become
     vested (which may be based on performance), terminated, expired, cancelled,
     or replaced, and the circumstances for vesting acceleration or waiver of
     forfeiture restrictions, and other restrictions and limitations;

          (iv) to approve the forms of Award Agreements and all other documents,
     notices and certificates in connection therewith which need not be
     identical either as to type of Award or among Participants;

          (v) to construe and interpret the terms of the Plan and any Award
     Agreement, to determine the meaning of their terms, and to prescribe,
     amend, and rescind rules and procedures relating to the Plan and its
     administration; and

          (vi) in order to fulfill the purposes of the Plan and without amending
     the Plan, modify, cancel, or waive the Company's rights with respect to any
     Awards, to adjust or to modify Award Agreements for changes in Applicable
     Law, and to recognize differences in foreign law, tax policies, or customs;
     and

          (vii) to make all other interpretations and to take all other actions
     that the Committee may consider necessary or advisable to administer the
     Plan or to effectuate its purposes.

     Subject to Applicable Law and the restrictions set forth in the Plan, the
Committee may delegate administrative functions to individuals who are Reporting
Persons, officers, or Employees of the Company or its Affiliates.

     (d) Deference to Committee Determinations. The Committee shall have the
discretion to interpret or construe ambiguous, unclear, or implied (but omitted)
terms in any fashion it deems to be appropriate in its sole discretion, and to
make any findings of fact needed in the administration of the Plan or Award
Agreements. The Committee's prior exercise of its discretionary authority shall
not obligate it to exercise its authority in a like fashion thereafter. The
Committee's interpretation and construction of any provision of the Plan, or of
any Award or Award Agreement, shall be final, binding, and conclusive. The
validity of any such interpretation, construction, decision or finding of fact
shall not be given de novo review if



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 5


challenged in court, by arbitration, or in any other forum, and shall be upheld
unless clearly made in bad faith or materially affected by fraud.

     (e) No Liability; Indemnification. Neither the Board nor any Committee
member, nor any Person acting at the direction of the Board or the Committee,
shall be liable for any act, omission, interpretation, construction or
determination made in good faith with respect to the Plan, any Award or any
Award Agreement. The Company and its Affiliates shall pay or reimburse any
member of the Committee, as well as any Director, Employee, or Consultant who
takes action in connection with the Plan, for all expenses incurred with respect
to the Plan, and to the full extent allowable under Applicable Law shall
indemnify each and every one of them for any claims, liabilities, and costs
(including reasonable attorney's fees) arising out of their good faith
performance of duties under the Plan. The Company and its Affiliates may obtain
liability insurance for this purpose.

5. ELIGIBILITY

     (a) General Rule. The Committee may grant ISOs only to Employees (including
officers who are Employees) of the Company or an Affiliate that is a "parent
corporation" or "subsidiary corporation" within the meaning of Section 424 of
the Code, and may grant all other Awards to any Eligible Person. A Participant
who has been granted an Award may be granted an additional Award or Awards if
the Committee shall so determine, if such person is otherwise an Eligible Person
and if otherwise in accordance with the terms of the Plan.

     (b) Grant of Awards. Subject to the express provisions of the Plan, the
Committee shall determine from the class of Eligible Persons those individuals
to whom Awards under the Plan may be granted, the number of Shares subject to
each Award, the price (if any) to be paid for the Shares or the Award and, in
the case of Performance Awards, in addition to the matters addressed in Section
10 below, the specific objectives, goals and performance criteria that further
define the Performance Award. Each Award shall be evidenced by an Award
Agreement signed by the Company and, if required by the Committee, by the
Participant. The Award Agreement shall set forth the material terms and
conditions of the Award established by the Committee, and each Award shall be
subject to the terms and conditions set forth in Sections 23, 24, and 25 unless
otherwise specifically provided in an Award Agreement.

     (c) Limits on Awards. During any calendar year, no Participant may receive
Options and SARs that relate to more than 1,000,000 Shares. The Committee will
adjust this limitation pursuant to Section 13 below.

     (d) Replacement Awards. Subject to Applicable Laws (including any
associated Shareholder approval requirements), the Committee may, in its sole
discretion and upon such terms as it deems appropriate, require as a condition
of the grant of an Award to a Participant that the Participant surrender for
cancellation some or all of the Awards that have previously been granted to the
Participant under this Plan or otherwise. An Award that is conditioned upon such
surrender may or may not be the same type of Award, may cover the same (or a
lesser or greater) number of Shares as such surrendered Award, may have other
terms that are determined without regard to the terms or conditions of such
surrendered Award, and may contain any other terms that the Committee deems
appropriate. In the case of Options, these other terms may not involve an
Exercise Price that is lower than the Exercise Price of the surrendered Option
unless the Company's shareholders approve the grant itself or the program under
which the grant is made pursuant to the Plan.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 6


6. OPTION AWARDS

     (a) Types; Documentation. The Committee may in its discretion grant ISOs to
any Employee and Non-ISOs to any Eligible Person, and shall evidence any such
grants in an Award Agreement that is delivered to the Participant. Each Option
shall be designated in the Award Agreement as an ISO or a Non-ISO, and the same
Award Agreement may grant both types of Options. At the sole discretion of the
Committee, any Option may be exercisable, in whole or in part, immediately upon
the grant thereof, or only after the occurrence of a specified event, or only in
installments, which installments may vary. Options granted under the Plan may
contain such terms and provisions not inconsistent with the Plan that the
Committee shall deem advisable in its sole and absolute discretion.

     (b) ISO $100,000 Limitation. To the extent that the aggregate Fair Market
Value of Shares with respect to which Options designated as ISOs first become
exercisable by a Participant in any calendar year (under this Plan and any other
plan of the Company or any Affiliate) exceeds $100,000, such excess Options
shall be treated as Non-ISOs. For purposes of determining whether the $100,000
limit is exceeded, the Fair Market Value of the Shares subject to an ISO shall
be determined as of the Grant Date. In reducing the number of Options treated as
ISOs to meet the $100,000 limit, the most recently granted Options shall be
reduced first. In the event that Section 422 of the Code is amended to alter the
limitation set forth therein, the limitation of this Section 6(b) shall be
automatically adjusted accordingly.

     (c) Term of Options. Each Award Agreement shall specify a term at the end
of which the Option automatically expires, subject to earlier termination
provisions contained in Section 6(h) hereof; provided, that, the term of any
Option may not exceed ten years from the Grant Date. In the case of an ISO
granted to an Employee who is a Ten Percent Holder on the Grant Date, the term
of the ISO shall not exceed five years from the Grant Date.

     (d) Exercise Price. The exercise price of an Option shall be determined by
the Committee in its sole discretion and shall be set forth in the Award
Agreement, provided that (i) if an ISO is granted to an Employee who on the
Grant Date is a Ten Percent Holder, the per Share exercise price shall not be
less than 110% of the Fair Market Value per Share on the Grant Date, and (ii)
for all other Options, such per Share exercise price shall not be less than 100%
of the Fair Market Value per Share on the Grant Date. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of the federal securities laws applicable to proxy statement
disclosures.

     (e) Exercise of Option. The times, circumstances and conditions under which
an Option shall be exercisable shall be determined by the Committee in its sole
discretion and set forth in the Award Agreement. The Committee shall have the
discretion to determine whether and to what extent the vesting of Options shall
be tolled during any unpaid leave of absence; provided, however, that in the
absence of such determination, vesting of Options shall be tolled during any
such leave approved by the Company.

     (f) Minimum Exercise Requirements. An Option may not be exercised for a
fraction of a Share. The Committee may require in an Award Agreement that an
Option be exercised as to a minimum number of Shares, provided that such
requirement shall not prevent a Participant from purchasing the full number of
Shares as to which the Option is then exercisable.

     (g) Methods of Exercise. Prior to its expiration pursuant to the terms of
the applicable Award Agreement, and subject to the times, circumstances and
conditions for exercise contained in the applicable Award Agreement, each Option
may be exercised, in whole or in part (provided that the Company shall not be
required to issue fractional shares), by delivery of written notice of exercise
to the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 7


secretary of the Company accompanied by the full exercise price of the Shares
being purchased. In the case of an ISO, the Committee shall determine the
acceptable methods of payment on the Grant Date and it shall be included in the
applicable Award Agreement. The methods of payment that the Committee may in its
discretion accept or commit to accept in an Award Agreement include:

          (i) cash or check payable to the Company (in U.S. dollars);

          (ii) other Shares that (A) are owned by the Participant who is
     purchasing Shares pursuant to an Option, (B) have a Fair Market Value on
     the date of surrender equal to the aggregate exercise price of the Shares
     as to which the Option is being exercised, (C) were not acquired by such
     Participant pursuant to the exercise of an Option, unless such Shares have
     been owned by such Participant for at least six months or such other period
     as the Committee may determine, (D) are all, at the time of such surrender,
     free and clear of any and all claims, pledges, liens and encumbrances, or
     any restrictions which would in any manner restrict the transfer of such
     shares to or by the Company (other than such restrictions as may have
     existed prior to an issuance of such Shares by the Company to such
     Participant), and (E) are duly endorsed for transfer to the Company;

          (iii) a cashless exercise program that the Committee may approve, from
     time to time in its discretion, pursuant to which a Participant may
     concurrently provide irrevocable instructions (A) to such Participant's
     broker or dealer to effect the immediate sale of the purchased Shares and
     remit to the Company, out of the sale proceeds available on the settlement
     date, sufficient funds to cover the exercise price of the Option plus all
     applicable taxes required to be withheld by the Company by reason of such
     exercise, and (B) to the Company to deliver the certificates for the
     purchased Shares directly to such broker or dealer in order to complete the
     sale; or

          (iv) any combination of the foregoing methods of payment.

     The Company shall not be required to deliver Shares pursuant to the
exercise of an Option until payment of the full exercise price therefore is
received by the Company.

     (h) Termination of Continuous Service. The Committee may establish and set
forth in the applicable Award Agreement the terms and conditions on which an
Option shall remain exercisable, if at all, following termination of a
Participant's Continuous Service. The Committee may waive or modify these
provisions at any time. To the extent that a Participant is not entitled to
exercise an Option at the date of his or her termination of Continuous Service,
or if the Participant (or other person entitled to exercise the Option) does not
exercise the Option to the extent so entitled within the time specified in the
Award Agreement or below (as applicable), the Option shall terminate and the
Shares underlying the unexercised portion of the Option shall revert to the Plan
and become available for future Awards. In no event may any Option be exercised
after the expiration of the Option term as set forth in the Award Agreement.

     The following provisions shall apply to the extent an Award Agreement does
not specify the terms and conditions upon which an Option shall terminate when
there is a termination of a Participant's Continuous Service:

          (i) Termination other than Upon Disability or Death or for Cause. In
     the event of termination of a Participant's Continuous Service (other than
     as a result of Participant's death, disability, retirement or termination
     for Cause), the Participant shall have the right to exercise an Option at
     any time within 90 days following such termination to the extent the
     Participant was entitled to exercise such Option at the date of such
     termination.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 8


          (ii) Disability. In the event of termination of a Participant's
     Continuous Service as a result of his or her being Disabled, the
     Participant shall have the right to exercise an Option at any time within
     one year following such termination to the extent the Participant was
     entitled to exercise such Option at the date of such termination.

          (iii) Retirement. In the event of termination of a Participant's
     Continuous Service as a result of Participant's retirement, the Participant
     shall have the right to exercise the Option at any time within six months
     following such termination to the extent the Participant was entitled to
     exercise such Option at the date of such termination.

          (iv) Death. In the event of the death of a Participant during the
     period of Continuous Service since the Grant Date of an Option, or within
     thirty days following termination of the Participant's Continuous Service,
     the Option may be exercised, at any time within one year following the date
     of the Participant's death, by the Participant's estate or by a person who
     acquired the right to exercise the Option by bequest or inheritance, but
     only to the extent the right to exercise the Option had vested at the date
     of death or, if earlier, the date the Participant's Continuous Service
     terminated.

          (v) Cause. If the Committee determines that a Participant's Continuous
     Service terminated due to Cause, the Participant shall immediately forfeit
     the right to exercise any Option, and it shall be considered immediately
     null and void.

     (i) Reverse Vesting. The Committee in its sole discretion may allow a
Participant to exercise unvested Options, in which case the Shares then issued
shall be Restricted Shares having analogous vesting restrictions to the unvested
Options.

     (j) Buyout Provisions. The Committee may at any time offer to buy out an
Option, in exchange for a payment in cash or Shares, based on such terms and
conditions as the Committee shall establish and communicate to the Participant
at the time that such offer is made.

7. SHARE APPRECIATE RIGHTS (SARS)

     (a) Grants. The Committee may in its discretion grant Share Appreciation
Rights to any Eligible Person, in any of the following forms:

          (i) SARs related to Options. The Committee may grant SARs either
     concurrently with the grant of an Option or with respect to an outstanding
     Option, in which case the SAR shall extend to all or a portion of the
     Shares covered by the related Option. An SAR shall entitle the Participant
     who holds the related Option, upon exercise of the SAR and surrender of the
     related Option, or portion thereof, to the extent the SAR and related
     Option each were previously unexercised, to receive payment of an amount
     determined pursuant to Section 7(e) below. Any SAR granted in connection
     with an ISO will contain such terms as may be required to comply with the
     provisions of Section 422 of the Code and the regulations promulgated
     thereunder.

          (ii) SARs Independent of Options. The Committee may grant SARs which
     are independent of any Option subject to such conditions as the Committee
     may in its discretion determine, which conditions will be set forth in the
     applicable Award Agreement.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 9


          (iii) Limited SARs. The Committee may grant SARs exercisable only upon
     or in respect of a Change in Control or any other specified event, and such
     limited SARs may relate to or operate in tandem or combination with or
     substitution for Options or other SARs, or on a stand-alone basis, and may
     be payable in cash or Shares based on the spread between the exercise price
     of the SAR, and (A) a price based upon or equal to the Fair Market Value of
     the Shares during a specified period, at a specified time within a
     specified period before, after or including the date of such event, or (B)
     a price related to consideration payable to Company's shareholders
     generally in connection with the event.

     (b) Exercise Price. The per Share exercise price of an SAR shall be
determined in the sole discretion of the Committee, shall be set forth in the
applicable Award Agreement, and shall be no less than 100% of the Fair Market
Value of one Share. The exercise price of an SAR related to an Option shall be
the same as the exercise price of the related Option. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of federal securities laws applicable to proxy statement
disclosures.

     (c) Exercise of SARs. Unless the Award Agreement otherwise provides, an SAR
related to an Option will be exercisable at such time or times, and to the
extent, that the related Option will be exercisable; provided that the Award
Agreement shall not, without the approval of the shareholders of the Company,
provide for a vesting period for the exercise of the SAR that is more favorable
to the Participant than the exercise period for the related Option. An SAR may
not have a term exceeding ten years from its Grant Date. An SAR granted
independently of any other Award will be exercisable pursuant to the terms of
the Award Agreement, but shall not, without the approval of the shareholders of
the Company, provide for a vesting period for the exercise of the SAR that is
more favorable to the Participant than the exercise period for the related
Option. Whether an SAR is related to an Option or is granted independently, the
SAR may only be exercised when the Fair Market Value of the Shares underlying
the SAR exceeds the exercise price of the SAR.

     (d) Effect on Available Shares. All SARs that may be settled in shares of
the Company's stock shall be counted in full against the number of shares
available for award under the Plan, regardless of the number of shares actually
issued upon settlement of the SARs.

     (e) Payment. Upon exercise of an SAR related to an Option and the attendant
surrender of an exercisable portion of any related Award, the Participant will
be entitled to receive payment of an amount determined by multiplying --

          (i) the excess of the Fair Market Value of a Share on the date of
     exercise of the SAR over the exercise price per Share of the SAR, by

          (ii) the number of Shares with respect to which the SAR has been
     exercised.

     Notwithstanding the foregoing, an SAR granted independently of an Option
(i) may limit the amount payable to the Participant to a percentage, specified
in the Award Agreement but not exceeding one-hundred percent (100%), of the
amount determined pursuant to the preceding sentence, and (ii) shall be subject
to any payment or other restrictions that the Committee may at any time impose
in its discretion, including restrictions intended to conform the SARs with
Section 409A of the Code.

     (f) Form and Terms of Payment. Subject to Applicable Law, the Committee
may, in its sole discretion, settle the amount determined under Section 7(e)
above solely in cash, solely in Shares (valued at their Fair Market Value on the
date of exercise of the SAR), or partly in cash and partly in Shares, with



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 10


cash paid in lieu of fractional shares. Unless otherwise provided in an Award
Agreement, all SARs shall be settled in Shares as soon as practicable after
exercise.

     (g) Termination of Employment or Consulting Relationship. The Committee
shall establish and set forth in the applicable Award Agreement the terms and
conditions on which an SAR shall remain exercisable, if at all, following
termination of a Participant's Continuous Service. The provisions of Section
6(h) above shall apply to the extent an Award Agreement does not specify the
terms and conditions upon which an SAR shall terminate when there is a
termination of a Participant's Continuous Service.

     (h) Buy out. The Committee has the same discretion to buy out SARs as it
has to take such actions pursuant to Section 6(j) above with respect to Options.

8. RESTRICTED SHARES, RESTRICTED SHARE UNITS, AND UNRESTRICTED SHARES

     (a) Grants. The Committee may in its sole discretion grant restricted
shares ("Restricted Shares") to any Eligible Person and shall evidence such
grant in an Award Agreement that is delivered to the Participant and that sets
forth the number of Restricted Shares, the purchase price for such Restricted
Shares (if any), and the terms upon which the Restricted Shares may become
vested. In addition, the Company may in its discretion grant the right to
receive Shares after certain vesting requirements are met ("Restricted Share
Units") to any Eligible Person and shall evidence such grant in an Award
Agreement that is delivered to the Participant which sets forth the number of
Shares (or formula, that may be based on future performance or conditions, for
determining the number of Shares) that the Participant shall be entitled to
receive upon vesting and the terms upon which the Shares subject to a Restricted
Share Unit may become vested. The Committee may condition any Award of
Restricted Shares or Restricted Share Units to a Participant on receiving from
the Participant such further assurances and documents as the Committee may
require to enforce the restrictions. In addition, the Committee may grant Awards
hereunder in the form of unrestricted shares ("Unrestricted Shares"), which
shall vest in full upon the date of grant or such other date as the Committee
may determine or which the Committee may issue pursuant to any program under
which one or more Eligible Persons (selected by the Committee in its sole
discretion) elect to receive Unrestricted Shares in lieu of cash bonuses that
would otherwise be paid.

     (b) Vesting and Forfeiture. The Committee shall set forth in an Award
Agreement granting Restricted Shares or Restricted Share Units, the terms and
conditions under which the Participant's interest in the Restricted Shares or
the Shares subject to Restricted Share Units will become vested and
non-forfeitable. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, upon termination of a Participant's Continuous
Service for any other reason, the Participant shall forfeit his or her
Restricted Shares and Restricted Share Units; provided that if a Participant
purchases the Restricted Shares and forfeits them for any reason, the Company
shall return the purchase price to the Participant only if and to the extent set
forth in an Award Agreement.

     (c) Issuance of Restricted Shares Prior to Vesting. The Company shall issue
stock certificates that evidence Restricted Shares pending the lapse of
applicable restrictions, and that bear a legend making appropriate reference to
such restrictions. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, the Company or a third party that the Company
designates shall hold such Restricted Shares and any dividends that accrue with
respect to Restricted Shares pursuant to Section 8(e) below.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
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     (d) Issuance of Shares upon Vesting. As soon as practicable after vesting
of a Participant's Restricted Shares (or Shares underlying Restricted Share
Units) and the Participant's satisfaction of applicable tax withholding
requirements, the Company shall release to the Participant, free from the
vesting restrictions, one Share for each vested Restricted Share (or issue one
Share free of the vesting restriction for each vested Restricted Share Unit),
unless an Award Agreement provides otherwise. No fractional shares shall be
distributed, and cash shall be paid in lieu thereof.

     (e) Dividends Payable on Vesting. Whenever Shares are released to a
Participant or duly-authorized transferee pursuant to Section 8(d) above as a
result of the vesting of Restricted Shares or the Shares underlying Restricted
Share Units are issued to a Participant pursuant to Section 8(d) above, such
Participant or duly-authorized transferee shall also be entitled to receive
(unless otherwise provided in the Award Agreement), with respect to each Share
released or issued, an amount equal to any cash dividends (plus, in the sole
discretion of the Committee, simple interest at a rate as the Committee may
determine) and a number of Shares equal to any stock dividends, which were
declared and paid to the holders of Shares between the Grant Date and the date
such Share is released from the vesting restrictions in the case of Restricted
Shares or issued in the case of Restricted Share Units.

     (f) Section 83(b) Elections. A Participant may make an election under
Section 83(b) of the Code (the "Section 83(b) Election") with respect to
Restricted Shares. If a Participant who has received Restricted Share Units
provides the Committee with written notice of his or her intention to make a
Section 83(b) Election with respect to the Shares subject to such Restricted
Share Units, the Committee may in its discretion convert the Participant's
Restricted Share Units into Restricted Shares, on a one-for-one basis, in full
satisfaction of the Participant's Restricted Share Unit Award. The Participant
may then make a Section 83(b) Election with respect to those Restricted Shares.
Shares with respect to which a Participant makes a Section 83(b) Election shall
not be eligible for deferral pursuant to Section 9 below.

     (g) Deferral Elections. At any time within the thirty-day period (or other
shorter or longer period that the Committee selects in its sole discretion) in
which a Participant who is a member of a select group of management or highly
compensated employees (within the meaning of the Code) receives an Award of
either Restricted Shares or Restricted Share Units, the Committee may permit the
Participant to irrevocably elect, on a form provided by and acceptable to the
Committee, to defer the receipt of all or a percentage of the Shares that would
otherwise be transferred to the Participant upon the vesting of such Award. If
the Participant makes this election, the Shares subject to the election, and any
associated dividends and interest, shall be credited to an account established
pursuant to Section 9 hereof on the date such Shares would otherwise have been
released or issued to the Participant pursuant to Section 8(d) above.

9. DEFERRED SHARE UNITS

     (a) Elections to Defer. The Committee may permit any Eligible Person who is
a Director, Consultant or member of a select group of management or highly
compensated employees (within the meaning of the Code) to irrevocably elect, on
a form provided by and acceptable to the Committee (the "Election Form"), to
forego the receipt of cash or other compensation (including the Shares
deliverable pursuant to any Award other than Restricted Shares for which a
Section 83(b) Election has been made), and in lieu thereof to have the Company
credit to an internal Plan account (the "Account") a number of deferred share
units ("Deferred Share Units") having a Fair Market Value equal to the Shares
and other compensation deferred. These credits will be made at the end of each
calendar month during which compensation is deferred. Each Election Form shall
take effect on the first day of the next calendar year (or on the first day of
the next calendar month in the case of an initial election by a Participant who
first becomes eligible to



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 12


defer hereunder) after its delivery to the Company, subject to Section 8(g)
regarding deferral of Restricted Shares and Restricted Share Units and to
Section 10(e) regarding deferral of Performance Awards, unless the Company sends
the Participant a written notice explaining why the Election Form is invalid
within five business days after the Company receives it. Notwithstanding the
foregoing sentence: (i) Election Forms shall be ineffective with respect to any
compensation that a Participant earns before the date on which the Company
receives the Election Form, and (ii) the Committee may unilaterally make awards
in the form of Deferred Share Units, regardless of whether or not the
Participant foregoes other compensation.

     (b) Vesting. Unless an Award Agreement expressly provides otherwise, each
Participant shall be 100% vested at all times in any Shares subject to Deferred
Share Units.

     (c) Issuances of Shares. The Company shall provide a Participant with one
Share for each Deferred Share Unit in five substantially equal annual
installments that are issued before the last day of each of the five calendar
years that end after the date on which the Participant's Continuous Service
terminates, unless --

          (i) the Participant has properly elected a different form of
     distribution, on a form approved by the Committee, that permits the
     Participant to select any combination of a lump sum and annual installments
     that are completed within ten years following termination of the
     Participant's Continuous Service, and

          (ii) the Company received the Participant's distribution election form
     at the time the Participant elects to defer the receipt of cash or other
     compensation pursuant to Section 9(a), provided that such election may be
     changed through any subsequent election that (i) is delivered to the
     Company at least one year before the date on which distributions are
     otherwise scheduled to commence pursuant to the Participant's election, and
     (ii) defers the commencement of distributions by at least five years from
     the originally scheduled commencement date.

     Fractional shares shall not be issued, and instead shall be paid out in
cash.

     (d) Crediting of Dividends. Whenever Shares are issued to a Participant
pursuant to Section 9(c) above, such Participant shall also be entitled to
receive, with respect to each Share issued, a cash amount equal to any cash
dividends (plus simple interest at a rate of five percent per annum, or such
other reasonable rate as the Committee may determine), and a number of Shares
equal to any stock dividends which were declared and paid to the holders of
Shares between the Grant Date and the date such Share is issued.

     (e) Emergency Withdrawals. In the event a Participant suffers an
unforeseeable emergency within the contemplation of this Section and Section
409A of the Code, the Participant may apply to the Company for an immediate
distribution of all or a portion of the Participant's Deferred Share Units. The
unforeseeable emergency must result from a sudden and unexpected illness or
accident of the Participant, the Participant's spouse, or a dependent (within
the meaning of Section 152(a) of the Code) of the Participant, casualty loss of
the Participant's property, or other similar extraordinary and unforeseeable
conditions beyond the control of the Participant. Examples of purposes which are
not considered unforeseeable emergencies include post-secondary school expenses
or the desire to purchase a residence. In no event will a distribution be made
to the extent the unforeseeable emergency could be relieved through
reimbursement or compensation by insurance or otherwise, or by liquidation of
the Participant's nonessential assets to the extent such liquidation would not
itself cause a severe financial hardship. The



Commerce Energy Group, Inc.
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Page 13


amount of any distribution hereunder shall be limited to the amount necessary to
relieve the Participant's unforeseeable emergency plus amounts necessary to pay
taxes reasonably anticipated as a result of the distribution. The Committee
shall determine whether a Participant has a qualifying unforeseeable emergency
and the amount which qualifies for distribution, if any. The Committee may
require evidence of the purpose and amount of the need, and may establish such
application or other procedures as it deems appropriate.

     (f) Unsecured Rights to Deferred Compensation. A Participant's right to
Deferred Share Units shall at all times constitute an unsecured promise of the
Company to pay benefits as they come due. The right of the Participant or the
Participant's duly-authorized transferee to receive benefits hereunder shall be
solely an unsecured claim against the general assets of the Company. Neither the
Participant nor the Participant's duly-authorized transferee shall have any
claim against or rights in any specific assets, shares, or other funds of the
Company.

10. PERFORMANCE AWARDS

     (a) Performance Units. Subject to the limitations set forth in paragraph
(c) hereof, the Committee may in its discretion grant Performance Units to any
Eligible Person and shall evidence such grant in an Award Agreement that is
delivered to the Participant which sets forth the terms and conditions of the
Award.

     (b) Performance Compensation Awards. Subject to the limitations set forth
in paragraph (c) hereof, the Committee may, at the time of grant of a
Performance Unit, designate such Award as a "Performance Compensation Award"
(payable in cash or Shares) in order that such Award constitutes "qualified
performance-based compensation" under Code Section 162(m), in which event the
Committee shall have the power to grant such Performance Compensation Award upon
terms and conditions that qualify it as "qualified performance-based
compensation" within the meaning of Code Section 162(m). With respect to each
such Performance Compensation Award, the Committee shall establish, in writing
within the time required under Code Section 162(m), a "Performance Period,"
"Performance Measure(s)", and "Performance Formula(e)" (each such term being
hereinafter defined). Once established for a Performance Period, the Performance
Measure(s) and Performance Formula(e) shall not be amended or otherwise modified
to the extent such amendment or modification would cause the compensation
payable pursuant to the Award to fail to constitute qualified performance-based
compensation under Code Section 162(m).

     A Participant shall be eligible to receive payment in respect of a
Performance Compensation Award only to the extent that the Performance
Measure(s) for such Award is achieved and the Performance Formula(e) as applied
against such Performance Measure(s) determines that all or some portion of such
Participant's Award has been earned for the Performance Period. As soon as
practicable after the close of each Performance Period, the Committee shall
review and certify in writing whether, and to what extent, the Performance
Measure(s) for the Performance Period have been achieved and, if so, determine
and certify in writing the amount of the Performance Compensation Award to be
paid to the Participant and, in so doing, may use negative discretion to
decrease, but not increase, the amount of the Award otherwise payable to the
Participant based upon such performance.

     (c) Limitations on Awards. The maximum Performance Unit Award and the
maximum Performance Compensation Award that any one Participant may receive for
any one Performance Period shall not together exceed 1,000,000 Shares and
$1,000,000 in cash. The Committee shall have the discretion to provide in any
Award Agreement that any amounts earned in excess of these limitations will
either be



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 14


credited as Deferred Share Units, or as deferred cash compensation
under a separate plan of the Company (provided in the latter case that such
deferred compensation either bears a reasonable rate of interest or has a value
based on one or more predetermined actual investments). Any amounts for which
payment to the Participant is deferred pursuant to the preceding sentence shall
be paid to the Participant in a future year or years not earlier than, and only
to the extent that, the Participant is either not receiving compensation in
excess of these limits for a Performance Period, or is not subject to the
restrictions set forth under Section 162(b) of the Code.

(d) Definitions.

          (i) "Performance Formula" means, for a Performance Period, one or more
     objective formulas or standards established by the Committee for purposes
     of determining whether or the extent to which an Award has been earned
     based on the level of performance attained or to be attained with respect
     to one or more Performance Measure(s). Performance Formulae may vary from
     Performance Period to Performance Period and from Participant to
     Participant and may be established on a stand-alone basis, in tandem or in
     the alternative.

          (ii) "Performance Measure" means one or more of the following selected
     by the Committee to measure Company, Affiliate, and/or business unit
     performance for a Performance Period, whether in absolute or relative terms
     (including, without limitation, terms relative to a peer group or index):
     basic, diluted, or adjusted earnings per share; sales or revenue; earnings
     before interest, taxes, and other adjustments (in total or on a per share
     basis); basic or adjusted net income; returns on equity, assets, capital,
     revenue or similar measure; economic value added; working capital; total
     shareholder return; and product development, product market share,
     research, licensing, litigation, human resources, information services,
     mergers, acquisitions, sales of assets of Affiliates or business units.
     Each such measure shall be, to the extent applicable, determined in
     accordance with generally accepted accounting principles as consistently
     applied by the Company (or such other standard applied by the Committee)
     and, if so determined by the Committee, and in the case of a Performance
     Compensation Award, to the extent permitted under Code Section 162(m),
     adjusted to omit the effects of extraordinary items, gain or loss on the
     disposal of a business segment, unusual or infrequently occurring events
     and transactions and cumulative effects of changes in accounting
     principles. Performance Measures may vary from Performance Period to
     Performance Period and from Participant to Participant, and may be
     established on a stand-alone basis, in tandem or in the alternative.

          (iii) "Performance Period" means one or more periods of time (of not
     less than one fiscal year of the Company), as the Committee may designate,
     over which the attainment of one or more Performance Measure(s) will be
     measured for the purpose of determining a Participant's rights in respect
     of an Award.

     (e) Deferral Elections. At any time prior to the date that is at least six
months before the close of a Performance Period (or shorter or longer period
that the Committee selects) with respect to an Award of either Performance Units
or Performance Compensation, the Committee may permit a Participant who is a
member of a select group of management or highly compensated employees (within
the meaning of the Code) to irrevocably elect, on a form provided by and
acceptable to the Committee, to defer the receipt of all or a percentage of the
cash or Shares that would otherwise be transferred to the Participant upon the
vesting of such Award. If the Participant makes this election, the cash or
Shares subject to the election, and any associated interest and dividends, shall
be credited to an account established pursuant to Section



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 15


9 hereof on the date such cash or Shares would otherwise have been released or
issued to the Participant pursuant to Section 10(a) or Section 10(b) above.

11. TAXES

     (a) General. As a condition to the issuance or distribution of Shares
pursuant to the Plan, the Participant (or in the case of the Participant's
death, the person who succeeds to the Participant's rights) shall make such
arrangements as the Company may require for the satisfaction of any applicable
federal, state, local or foreign withholding tax obligations that may arise in
connection with the Award and the issuance of Shares. The Company shall not be
required to issue any Shares until such obligations are satisfied. If the
Committee allows the withholding or surrender of Shares to satisfy a
Participant's tax withholding obligations, the Committee shall not allow Shares
to be withheld in an amount that exceeds the minimum statutory withholding rates
for federal and state tax purposes, including payroll taxes.

     (b) Default Rule for Employees. In the absence of any other arrangement, an
Employee shall be deemed to have directed the Company to withhold or collect
from his or her cash compensation an amount sufficient to satisfy such tax
obligations from the next payroll payment otherwise payable after the date of
the exercise of an Award.

     (c) Special Rules. In the case of a Participant other than an Employee (or
in the case of an Employee where the next payroll payment is not sufficient to
satisfy such tax obligations, with respect to any remaining tax obligations), in
the absence of any other arrangement and to the extent permitted under
Applicable Law, the Participant shall be deemed to have elected to have the
Company withhold from the Shares or cash to be issued pursuant to an Award that
number of Shares having a Fair Market Value determined as of the applicable Tax
Date (as defined below) or cash equal to the amount required to be withheld. For
purposes of this Section 11, the Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined under the Applicable Law (the "Tax Date").

     (d) Surrender of Shares. If permitted by the Committee, in its discretion,
a Participant may satisfy the minimum applicable tax withholding and employment
tax obligations associated with an Award by surrendering Shares to the Company
(including Shares that would otherwise be issued pursuant to the Award) that
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld. In the case of Shares previously acquired from
the Company that are surrendered under this Section 11, such Shares must have
been owned by the Participant for more than six months on the date of surrender
(or such longer period of time the Company may in its discretion require).

     (e) Income Taxes and Deferred Compensation. Participants are solely
responsible and liable for the satisfaction of all taxes and penalties that may
arise in connection with Awards (including any taxes arising under Section 409A
of the Code), and the Company shall not have any obligation to indemnify or
otherwise hold any Participant harmless from any or all of such taxes. The
Committee shall have the discretion to organize any deferral program, to require
deferral election forms, and to grant or to unilaterally modify any Award in a
manner that (i) conforms with the requirements of Section 409A of the Code with
respect to compensation that is deferred and that vests after December 31, 2004,
(ii) that voids any Participant election to the extent it would violate Section
409A of the Code, and (iii) for any distribution election that would violate
Section 409A of the Code, to make distributions pursuant to the Award at the
earliest to occur of a distribution event that is allowable under Section 409A
of the Code or any distribution event that is both allowable under Section 409A
of the Code and is elected by the Participant, subject to any valid second
election to defer, provided that the Committee permits second



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 16


elections to defer in accordance with Section 409A(a)(4)(C). The Committee shall
have the sole discretion to interpret the requirements of the Code, including
Section 409A, for purposes of the Plan and all Awards.

12. NON-TRANSFERABILITY OF AWARDS

     (a) General. Except as set forth in this Section 12, or as otherwise
approved by the Committee, Awards may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent or distribution. The designation of a beneficiary by a
Participant will not constitute a transfer. An Award may be exercised, during
the lifetime of the holder of an Award, only by such holder, the duly-authorized
legal representative of a Participant who is Disabled, or a transferee permitted
by this Section 12.

     (b) Limited Transferability Rights. Notwithstanding anything else in this
Section 12, the Committee may in its discretion provide in an Award Agreement
that an Award other than an ISO may be transferred, on such terms and conditions
as the Committee deems appropriate, either (i) by instrument to the
Participant's "Immediate Family" (as defined below), (ii) by instrument to an
inter vivos or testamentary trust (or other entity) in which the Award is to be
passed to the Participant's designated beneficiaries, or (iii) by gift to
charitable institutions. Any transferee of the Participant's rights shall
succeed and be subject to all of the terms of the applicable Award Agreement and
the Plan. "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, and shall include adoptive relationships.

13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER
TRANSACTIONS

     (a) Changes in Capitalization. The Committee shall equitably adjust the
number of Shares covered by each outstanding Award, and the number of Shares
that have been authorized for issuance under the Plan but as to which no Awards
have yet been granted or that have been returned to the Plan upon cancellation,
forfeiture, or expiration of an Award, as well as the price per Share covered by
each such outstanding Award, to reflect any increase or decrease in the number
of issued Shares resulting from a stock-split, reverse stock-split, stock
dividend, combination, recapitalization or reclassification of the Shares, or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company. In the event of any such transaction or
event, the Committee may provide in substitution for any or all outstanding
Options under the Plan such alternative consideration (including securities of
any surviving entity) as it may in good faith determine to be equitable under
the circumstances and may require in connection therewith the surrender of all
Options so replaced. In any case, such substitution of securities shall not
require the consent of any person who is granted Options pursuant to the Plan.
Except as expressly provided herein, or in an Award Agreement, if the Company
issues for consideration shares of stock of any class or securities convertible
into shares of stock of any class, the issuance shall not affect, and no
adjustment by reason thereof shall be required to be made with respect to the
number or price of Shares subject to any Award.

     (b) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company other than as part of a Change of Control, each Award
will terminate immediately prior to the consummation of such action, subject to
the ability of the Committee to exercise any discretion authorized in the case
of a Change in Control.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 17


     (c) Change in Control. In the event of a Change in Control, the Committee
may in its sole and absolute discretion and authority, without obtaining the
approval or consent of the Company's shareholders or any Participant with
respect to his or her outstanding Awards, take one or more of the following
actions:

          (i) arrange for or otherwise provide that each outstanding Award shall
     be assumed or a substantially similar award shall be substituted by a
     successor corporation or a parent or subsidiary of such successor
     corporation (the "Successor Corporation");

          (ii) accelerate the vesting of Awards so that Awards shall vest (and,
     to the extent applicable, become exercisable) as to the Shares that
     otherwise would have been unvested and provide that repurchase rights of
     the Company with respect to Shares issued upon exercise of an Award shall
     lapse as to the Shares subject to such repurchase right;

          (iii) arrange or otherwise provide for the payment of cash or other
     consideration to Participants in exchange for the satisfaction and
     cancellation of outstanding Awards;

          (iv) terminate upon the consummation of the transaction, provided that
     the Committee may in its sole discretion provide for vesting of all or some
     outstanding Awards in full as of a date immediately prior to consummation
     of the Change of Control. To the extent that an Award is not exercised
     prior to consummation of a transaction in which the Award is not being
     assumed or substituted, such Award shall terminate upon such consummation;
     or

          (v) make such other modifications, adjustments or amendments to
     outstanding Awards or this Plan as the Committee deems necessary or
     appropriate, subject however to the terms of Section 15(a) below.

     Notwithstanding the above, in the event a Participant holding an Award
assumed or substituted by the Successor Corporation in a Change in Control is
Involuntarily Terminated by the Successor Corporation in connection with, or
within 12 months following consummation of, the Change in Control, then any
assumed or substituted Award held by the terminated Participant at the time of
termination shall accelerate and become fully vested (and exercisable in full in
the case of Options and SARs), and any repurchase right applicable to any Shares
shall lapse in full, unless an Award Agreement provides for a more restrictive
acceleration or vesting schedule or more restrictive limitations on the lapse of
repurchase rights or otherwise places additional restrictions, limitations and
conditions on an Award. The acceleration of vesting and lapse of repurchase
rights provided for in the previous sentence shall occur immediately prior to
the effective date of the Participant's termination, unless an Award Agreement
provides otherwise.

     (d) Certain Distributions. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Committee may, in its discretion,
appropriately adjust the price per Share covered by each outstanding Award to
reflect the effect of such distribution.

14. TIME OF GRANTING AWARDS.

     The date of grant ("Grant Date") of an Award shall be the date on which the
Committee makes the determination granting such Award or such other date as is
determined by the Committee, provided that in the case of an ISO, the Grant Date
shall be the later of the date on which the Committee makes the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 18


determination granting such ISO or the date of commencement of the Participant's
employment relationship with the Company.

15. MODIFICATION OF AWARDS AND SUBSTITUTION OF OPTIONS.

     (a) Modification, Extension, and Renewal of Awards. Within the limitations
of the Plan, the Committee may modify an Award to accelerate the rate at which
an Option or SAR may be exercised (including without limitation permitting an
Option or SAR to be exercised in full without regard to the installment or
vesting provisions of the applicable Award Agreement or whether the Option or
SAR is at the time exercisable, to the extent it has not previously been
exercised), to accelerate the vesting of any Award, to extend or renew
outstanding Awards or to accept the cancellation of outstanding Awards to the
extent not previously exercised. However, the Committee may not cancel an
outstanding option that is underwater for the purpose of reissuing the option to
the participant at a lower exercise price or granting a replacement award of a
different type. Notwithstanding the foregoing provision, no modification of an
outstanding Award shall materially and adversely affect such Participant's
rights thereunder, unless either the Participant provides written consent or
there is an express Plan provision permitting the Committee to act unilaterally
to make the modification.

     (b) Substitution of Options. Notwithstanding any inconsistent provisions or
limits under the Plan, in the event the Company or an Affiliate acquires
(whether by purchase, merger or otherwise) all or substantially all of
outstanding capital stock or assets of another corporation or in the event of
any reorganization or other transaction qualifying under Section 424 of the
Code, the Committee may, in accordance with the provisions of that Section,
substitute Options for options under the plan of the acquired company provided
(i) the excess of the aggregate fair market value of the shares subject to an
option immediately after the substitution over the aggregate option price of
such shares is not more than the similar excess immediately before such
substitution and (ii) the new option does not give persons additional benefits,
including any extension of the exercise period.

16. TERM OF PLAN.

     The Plan shall continue in effect for a term of ten (10) years from its
effective date as determined under Section 20 below, unless the Plan is sooner
terminated under Section 17 below.

17. AMENDMENT AND TERMINATION OF THE PLAN.

     (a) Authority to Amend or Terminate. Subject to Applicable Laws, the Board
may from time to time amend, alter, suspend, discontinue, or terminate the Plan.

     (b) Effect of Amendment or Termination. No amendment, suspension, or
termination of the Plan shall materially and adversely affect Awards already
granted unless either it relates to an adjustment pursuant to Section 13 above,
or it is otherwise mutually agreed between the Participant and the Committee,
which agreement must be in writing and signed by the Participant and the
Company. Notwithstanding the foregoing, the Committee may amend the Plan to
eliminate provisions which are no longer necessary as a result of changes in tax
or securities laws or regulations, or in the interpretation thereof.

18. CONDITIONS UPON ISSUANCE OF SHARES.

     Notwithstanding any other provision of the Plan or any agreement entered
into by the Company pursuant to the Plan, the Company shall not be obligated,
and shall have no liability for failure, to issue or



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 19


deliver any Shares under the Plan unless such issuance or delivery would comply
with Applicable Law, with such compliance determined by the Company in
consultation with its legal counsel.

19. RESERVATION OF SHARES.

     The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.

20. EFFECTIVE DATE.

     This Plan shall become effective on the date on which it has received
approval by a vote of a majority of the votes cast at a duly held meeting of the
Company's shareholders (or by such other shareholder vote that the Administrator
determines to be sufficient for the issuance of Shares or stock options
according to the Company's governing documents and applicable state law).

21. CONTROLLING LAW.

     All disputes relating to or arising from the Plan shall be governed by the
internal substantive laws (and not the laws of conflicts of laws) of the State
of Delaware, to the extent not preempted by United States federal law. If any
provision of this Plan is held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions shall continue to be fully
effective.

22. LAWS AND REGULATIONS.

     (a) U.S. Securities Laws. This Plan, the grant of Awards, and the exercise
of Options and SARs under this Plan, and the obligation of the Company to sell
or deliver any of its securities (including, without limitation, Options,
Restricted Shares, Restricted Share Units, Deferred Share Units, and Shares)
under this Plan shall be subject to all Applicable Law. In the event that the
Shares are not registered under the Securities Act of 1933, as amended (the
"Act"), or any applicable state securities laws prior to the delivery of such
Shares, the Company may require, as a condition to the issuance thereof, that
the persons to whom Shares are to be issued represent and warrant in writing to
the Company that such Shares are being acquired by him or her for investment for
his or her own account and not with a view to, for resale in connection with, or
with an intent of participating directly or indirectly in, any distribution of
such Shares within the meaning of the Act, and a legend to that effect may be
placed on the certificates representing the Shares.

     (b) Other Jurisdictions. To facilitate the making of any grant of an Award
under this Plan, the Committee may provide for such special terms for Awards to
Participants who are foreign nationals or who are employed by the Company or any
Affiliate outside of the United States of America as the Committee may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom. The Company may adopt rules and procedures relating to the operation and
administration of this Plan to accommodate the specific requirements of local
laws and procedures of particular countries. Without limiting the foregoing, the
Company is specifically authorized to adopt rules and procedures regarding the
conversion of local currency, taxes, withholding procedures and handling of
stock certificates which vary with the customs and requirements of particular
countries. The Company may adopt sub-plans and establish escrow accounts and
trusts as may be appropriate or applicable to particular locations and
countries.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 20


23. NO SHAREHOLDER RIGHTS.

     Neither a Participant nor any transferee of a Participant shall have any
rights as a shareholder of the Company with respect to any Shares underlying any
Award until the date of issuance of a share certificate to a Participant or a
transferee of a Participant for such Shares in accordance with the Company's
governing instruments and Applicable Law. Prior to the issuance of Shares
pursuant to an Award, a Participant shall not have the right to vote or to
receive dividends or any other rights as a shareholder with respect to the
Shares underlying the Award, notwithstanding its exercise in the case of Options
and SARs. No adjustment will be made for a dividend or other right that is
determined based on a record date prior to the date the stock certificate is
issued, except as otherwise specifically provided for in this Plan.

24. NO EMPLOYMENT RIGHTS.

     The Plan shall not confer upon any Participant any right to continue an
employment, service or consulting relationship with the Company, nor shall it
affect in any way a Participant's right or the Company's right to terminate the
Participant's employment, service, or consulting relationship at any time, with
or without Cause.

25. TERMINATION, RESCISSION AND RECAPTURE.

     (a) Each Award under the Plan is intended to align the Participant's
long-term interest with those of the Company. If the Participant engages in
certain activities discussed below, either during employment or after employment
with the Company terminates for any reason, the Participant is acting contrary
to the long-term interests of the Company. Accordingly, except as otherwise
expressly provided in the Award Agreement, the Company may terminate any
outstanding, unexercised, unexpired, unpaid, or deferred Awards ("Termination"),
rescind any exercise, payment or delivery pursuant to the Award ("Rescission"),
or recapture any Common Stock (whether restricted or unrestricted) or proceeds
from the Participant's sale of Shares issued pursuant to the Award
("Recapture"), if the Participant does not comply with the conditions of
subsections (b) and (c) hereof (collectively, the "Conditions").

     (b) A Participant shall not, without the Company's prior written
authorization, disclose to anyone outside the Company, or use in other than the
Company's business, any proprietary or confidential information or material, as
those or other similar terms are used in any applicable patent, confidentiality,
inventions, secrecy, or other agreement between the Participant and the Company
with regard to any such proprietary or confidential information or material.

     (c) Pursuant to any agreement between the Participant and the Company with
regard to intellectual property (including but not limited to patents,
trademarks, copyrights, trade secrets, inventions, developments, improvements,
proprietary information, confidential business and personnel information), a
Participant shall promptly disclose and assign to the Company or its designee
all right, title, and interest in such intellectual property, and shall take all
reasonable steps necessary to enable the Company to secure all right, title and
interest in such intellectual property in the United States and in any foreign
country.

     (d) Upon exercise, payment, or delivery of cash or Common Stock pursuant to
an Award, the Participant shall certify on a form acceptable to the Company that
he or she is in compliance with the terms and conditions of the Plan and, if a
severance of Continuous Service has occurred for any reason, shall state the
name and address of the Participant's then-current employer or any entity for
which the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 21


Participant performs business services and the Participant's title, and shall
identify any organization or business in which the Participant owns a
greater-than-five-percent equity interest.

     (e) If the Company determines, in its sole and absolute discretion, that
(i) a Participant has violated any of the Conditions or (ii) during his or her
Continuous Service, or within one year after its termination for any reason, a
Participant (a) has rendered services to or otherwise directly or indirectly
engaged in or assisted, any organization or business that, in the judgment of
the Company in its sole and absolute discretion, is or is working to become
competitive with the Company; (b) has solicited any non-administrative employee
of the Company to terminate employment with the Company; or (c) has engaged in
activities which are materially prejudicial to or in conflict with the interests
of the Company, including any breaches of fiduciary duty or the duty of loyalty,
then the Company may, in its sole and absolute discretion, impose a Termination,
Rescission, and/or Recapture with respect to any or all of the Participant's
relevant Awards, Shares, and the proceeds thereof.

     (f) Within ten days after receiving notice from the Company of any such
activity, the Participant shall deliver to the Company the Shares acquired
pursuant to the Award, or, if Participant has sold the Shares, the gain
realized, or payment received as a result of the rescinded exercise, payment, or
delivery; provided, that if the Participant returns Shares that the Participant
purchased pursuant to the exercise of an Option (or the gains realized from the
sale of such Common Stock), the Company shall promptly refund the exercise
price, without earnings, that the Participant paid for the Shares. Any payment
by the Participant to the Company pursuant to this Section 21 shall be made
either in cash or by returning to the Company the number of Shares that the
Participant received in connection with the rescinded exercise, payment, or
delivery. It shall not be a basis for Termination, Rescission or Recapture if
after termination of a Participant's Continuous Service, the Participant
purchases, as an investment or otherwise, stock or other securities of such an
organization or business, so long as (i) such stock or other securities are
listed upon a recognized securities exchange or traded over-the-counter, and
(ii) such investment does not represent more than a five percent (5%) equity
interest in the organization or business.

     (g) Notwithstanding the foregoing provisions of this Section, the Company
has sole and absolute discretion not to require Termination, Rescission and/or
Recapture, and its determination not to require Termination, Rescission and/or
Recapture with respect to any particular act by a particular Participant or
Award shall not in any way reduce or eliminate the Company's authority to
require Termination, Rescission and/or Recapture with respect to any other act
or Participant or Award. Nothing in this Section shall be construed to impose
obligations on the Participant to refrain from engaging in lawful competition
with the Company after the termination of employment that does not violate
subsections (b) or (c) of this Section, other than any obligations that are part
of any separate agreement between the Company and the Participant or that arise
under applicable law.

     (h) All administrative and discretionary authority given to the Company
under this Section shall be exercised by the most senior human resources
executive of the Company or such other person or committee (including without
limitation the Committee) as the Committee may designate from time to time.

     (i) Notwithstanding any provision of this Section, if any provision of this
Section is determined to be unenforceable or invalid under any applicable law,
such provision will be applied to the maximum extent permitted by applicable
law, and shall automatically be deemed amended in a manner consistent with its
objectives to the extent necessary to conform to any limitations required under
applicable law. Furthermore, if any provision of this Section is illegal under
any applicable law, such provision shall be null and void to the extent
necessary to comply with applicable law.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 22


     Notwithstanding the foregoing, but subject to any contrary terms set forth
in any Award Agreement, this Section shall not be applicable: (i) to any
Participant who is not, on the Award Date, an Employee of the Company or its
Affiliates; and (ii) to any Participant from and after his or her termination of
Continuous Service after a Change in Control.


Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 23


                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                   ----------

                             APPENDIX A: DEFINITIONS

                                   ----------

     As used in the Plan, the following definitions shall apply:

     "AFFILIATE" means, with respect to any Person (as defined below), any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person or the power to elect directors, whether through the ownership of
voting securities, by contract or otherwise; and the terms "affiliated,"
"controlling" and "controlled" have meanings correlative to the foregoing.

     "APPLICABLE LAW" means the legal requirements relating to the
administration of options and share-based plans under applicable U.S. federal
and state laws, the Code, any applicable stock exchange or automated quotation
system rules or regulations, and the applicable laws of any other country or
jurisdiction where Awards are granted, as such laws, rules, regulations and
requirements shall be in place from time to time.

     "AWARD" means any award made pursuant to the Plan, including awards made in
the form of an Option, an SAR, a Restricted Share, a Restricted Share Unit, an
Unrestricted Share, a Deferred Share Unit, and a Performance Award, or any
combination thereof, whether alternative or cumulative, authorized by and
granted under this Plan.

     "AWARD AGREEMENT" means any written document setting forth the terms of an
Award that has been authorized by the Committee. The Committee shall determine
the form or forms of documents to be used, and may change them from time to time
for any reason.

     "BOARD" means the Board of Directors of the Company.

     "CAUSE" for termination of a Participant's Continuous Service will exist if
the Participant is terminated from employment or other service with the Company
or an Affiliate for any of the following reasons: (i) the Participant's willful
failure to substantially perform his or her duties and responsibilities to the
Company or deliberate violation of a material Company policy; (ii) the
Participant's commission of any material act or acts of fraud, embezzlement,
dishonesty, or other willful misconduct; (iii) the Participant's material
unauthorized use or disclosure of any proprietary information or trade secrets
of the Company or any other party to whom the Participant owes an obligation of
nondisclosure as a result of his or her relationship with the Company; or (iv)
Participant's willful and material breach of any of his or her obligations under
any written agreement or covenant with the Company.

     The Committee shall in its discretion determine whether or not a
Participant is being terminated for Cause. The Committee's determination shall,
unless arbitrary and capricious, be final and binding on the Participant, the
Company, and all other affected persons. The foregoing definition does not in
any way



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 24


limit the Company's ability to terminate a Participant's employment or
consulting relationship at any time, and the term "Company" will be interpreted
herein to include any Affiliate or successor thereto, if appropriate.

     "CHANGE IN CONTROL" means any of the following:

          (i) Acquisition of Controlling Interest. Any Person becomes the
     Beneficial Owner, directly or indirectly, of securities of the Company
     representing 50% or more of the combined voting power of the Company's then
     outstanding securities. In applying the preceding sentence, (i) securities
     acquired directly from the Company or its Affiliates by or for the Person
     shall not be taken into account, and (ii) an agreement to vote securities
     shall be disregarded unless its ultimate purpose is to cause what would
     otherwise be a Change in Control, as reasonably determined by the Board.

          (ii) Change in Board Control. During a consecutive 2-year period
     commencing after the date of adoption of this Plan, individuals who
     constituted the Board at the beginning of the period (or their approved
     replacements, as defined in the next sentence) cease for any reason to
     constitute a majority of the Board. A new Director shall be considered an
     "approved replacement" Director if his or her election (or nomination for
     election) was approved by a vote of at least a majority of the Directors
     then still in office who either were Directors at the beginning of the
     period or were themselves approved replacement Directors, but in either
     case excluding any Director whose initial assumption of office occurred as
     a result of an actual or threatened solicitation of proxies or consents by
     or on behalf of any Person other than the Board.

          (iii) Merger. The Company consummates a merger, or consolidation of
     the Company with any other corporation unless: (a) the voting securities of
     the Company outstanding immediately before the merger or consolidation
     would continue to represent (either by remaining outstanding or by being
     converted into voting securities of the surviving entity) at least 50% of
     the combined voting power of the voting securities of the Company or such
     surviving entity outstanding immediately after such merger or
     consolidation; and (b) no Person becomes the Beneficial Owner, directly or
     indirectly, of securities of the Company representing 50% or more of the
     combined voting power of the Company's then outstanding securities.

          (iv) Sale of Assets. The stockholders of the Company approve an
     agreement for the sale or disposition by the Company of all, or
     substantially all, of the Company's assets.

          (v) Liquidation or Dissolution. The stockholders of the Company
     approve a plan or proposal for liquidation or dissolution of the Company.

     Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.

     "CODE" means the U.S. Internal Revenue Code of 1986, as amended.

     "COMMITTEE" means one or more committees or subcommittees of the Board
appointed by the Board to administer the Plan in accordance with Section 4
above. With respect to any decision involving an



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 25


Award intended to satisfy the requirements of Section 162(m) of the Code, the
Committee shall consist of two or more Directors of the Company who are "outside
directors" within the meaning of Section 162(m) of the Code. With respect to any
decision relating to a Reporting Person, the Committee shall consist of two or
more Directors who are disinterested within the meaning of Rule 16b-3.

     "COMPANY" means Commerce Energy Group, Inc., a Delaware corporation;
provided, however, that in the event the Company reincorporates to another
jurisdiction, all references to the term "Company" shall refer to the Company in
such new jurisdiction.

     "CONSULTANT" means any person, including an advisor, who is engaged by the
Company or any Affiliate to render services and is compensated for such
services.

     "CONTINUOUS SERVICE" means the absence of any interruption or termination
of service as an Employee, Director, or Consultant. Continuous Service shall not
be considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Committee, provided that such
leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; (iv)
changes in status from Director to advisory director or emeritus status; or (v)
in the case of transfers between locations of the Company or between the
Company, its Affiliates or their respective successors. Changes in status
between service as an Employee, Director, and a Consultant will not constitute
an interruption of Continuous Service.

     "DEFERRED SHARE UNITS" mean Awards pursuant to Section 9 of the Plan.

     "DIRECTOR" means a member of the Board, or a member of the board of
directors of an Affiliate.

     "DISABLED" means a condition under which a Participant --

          (a) is unable to engage in any substantial gainful activity by reason
     of any medically determinable physical or mental impairment which can be
     expected to result in death or can be expected to last for a continuous
     period of not less than 12 months, or

          (b) is, by reason of any medically determinable physical or mental
     impairment which can be expected to result in death or can be expected to
     last for a continuous period of not less than 12 months, received income
     replacement benefits for a period of not less than 3 months under an
     accident or health plan covering employees of the Company.

     "ELIGIBLE PERSON" means any Consultant, Director or Employee and includes
non-Employees to whom an offer of employment has been extended.

     "EMPLOYEE" means any person whom the Company or any Affiliate classifies as
an employee (including an officer) for employment tax purposes, whether or not
that classification is correct. The payment by the Company of a director's fee
to a Director shall not be sufficient to constitute "employment" of such
Director by the Company.

     "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

     "FAIR MARKET VALUE" means, as of any date (the "Determination Date") means:
(i) the closing price of a Share on the New York Stock Exchange or the American
Stock Exchange (collectively, the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 26


"Exchange"), on the Determination Date, or, if shares were not traded on the
Determination Date, then on the nearest preceding trading day during which a
sale occurred; or (ii) if such stock is not traded on the Exchange but is quoted
on NASDAQ or a successor quotation system, (A) the last sales price (if the
stock is then listed as a National Market Issue under The Nasdaq National Market
System) or (B) the mean between the closing representative bid and asked prices
(in all other cases) for the stock on the Determination Date as reported by
NASDAQ or such successor quotation system; or (iii) if such stock is not traded
on the Exchange or quoted on NASDAQ but is otherwise traded in the
over-the-counter, the mean between the representative bid and asked prices on
the Determination Date; or (iv) if subsections (i)-(iii) do not apply, the fair
market value established in good faith by the Board.

     "GRANT DATE" has the meaning set forth in Section 14 of the Plan.

     "INCENTIVE SHARE OPTION OR ISO" hereinafter means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable Award Agreement.

     "INVOLUNTARY TERMINATION" means termination of a Participant's Continuous
Service under the following circumstances occurring on or after a Change in
Control: (i) termination without Cause by the Company or an Affiliate or
successor thereto, as appropriate; or (ii) voluntary termination by the
Participant within 60 days following (A) a material reduction in the
Participant's job responsibilities, provided that neither a mere change in title
alone nor reassignment to a substantially similar position shall constitute a
material reduction in job responsibilities; (B) an involuntary relocation of the
Participant's work site to a facility or location more than 50 miles from the
Participant's principal work site at the time of the Change in Control; or (C) a
material reduction in Participant's total compensation other than as part of an
reduction by the same percentage amount in the compensation of all other
similarly-situated Employees, Directors or Consultants.

     "NON-ISO" means an Option not intended to qualify as an ISO, as designated
in the applicable Award Agreement.

     "OPTION" means any stock option granted pursuant to Section 6 of the Plan.

     "PARTICIPANT" means any holder of one or more Awards, or the Shares
issuable or issued upon exercise of such Awards, under the Plan.

     "PERFORMANCE AWARDS" mean Performance Units and Performance Compensation
Awards granted pursuant to Section 10.

     "PERFORMANCE COMPENSATION AWARDS" mean Awards granted pursuant to Section
10(b) of the Plan.

     "PERFORMANCE UNIT" means Awards granted pursuant to Section 10(a) of the
Plan which may be paid in cash, in Shares, or such combination of cash and
Shares as the Committee in its sole discretion shall determine.

     "PERSON" means any natural person, association, trust, business trust,
cooperative, corporation, general partnership, joint venture, joint-stock
company, limited partnership, limited liability company, real estate investment
trust, regulatory body, governmental agency or instrumentality, unincorporated
organization or organizational entity.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 27


     "PLAN" means this Commerce Energy Group, Inc. 2006 Stock Incentive Plan.

     "REPORTING PERSON" means an officer, Director, or greater than ten percent
shareholder of the Company within the meaning of Rule 16a-2 under the Exchange
Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange
Act.

     "RESTRICTED SHARES" mean Shares subject to restrictions imposed pursuant to
Section 8 of the Plan.

     "RESTRICTED SHARE UNITS" mean Awards pursuant to Section 8 of the Plan.

     "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act, as
amended from time to time, or any successor provision.

     "SAR" OR "SHARE APPRECIATION RIGHT" means Awards granted pursuant to
Section 7 of the Plan.

     "SHARE" means a share of common stock of the Company, par value $0.001, as
adjusted in accordance with Section 13 of the Plan.

     "TEN PERCENT HOLDER" means a person who owns stock representing more than
ten percent (10%) of the combined voting power of all classes of stock of the
Company or any Affiliate.

     "UNRESTRICTED SHARES" mean Shares awarded pursuant to Section 8 of the
Plan.

                         FEDERAL INCOME TAX CONSEQUENCES

          The following is a general discussion of certain U.S. federal income
tax consequences relating to awards granted under the 2006 Stock Incentive Plan.
This discussion does not address all aspects of U.S. federal income taxation,
does not discuss state, local and foreign tax issues and does not discuss
considerations applicable to a holder who is, with respect to the United States,
a non-resident alien individual. This summary of federal income tax consequences
does not purport to be complete and is based upon interpretations of the
existing laws, regulations and rulings which could be altered materially with
enactment of any new tax legislation.

          Under the United States Internal Revenue Code (the "Code"), the
Company will generally be entitled to a deduction for federal income tax
purposes at the same time and in the same amount as the ordinary income that
participants recognize pursuant to awards (subject to the participant's overall
compensation being reasonable, and to the discussion below with respect to Code
section 162(m)). For participants, the expected U.S. tax consequences of awards
are as follows:

          ISOs. ISOs may only be granted to employees and must be exercised
while employed or within 3 months of the termination of employment (except in
cases of death or disability). A participant will not recognize income upon the
grant of an ISO. There are generally no tax consequences to the participant upon
exercise of an ISO (except the amount by which the fair market value of the
shares at the time of exercise exceeds the option exercise price is a tax
preference item possibly giving rise to an alternative minimum tax). If the
shares are not disposed of within two years from the date the ISO was granted or
within one year after the ISO was exercised, any gain realized upon the
subsequent disposition of the shares will be characterized as long-term capital
gain and any loss will be characterized as long-term capital loss. If either of
these holding period requirements are not met, then a "disqualifying
disposition"



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 28


occurs and (a) the participant recognizes ordinary income gain in the amount by
which the fair market value of the shares at the time of exercise exceeded the
exercise price for the ISO and (b) any remaining amount realized on disposition
(except for certain "wash" sales, gifts or sales to related persons) will be
characterized as capital gain or loss.

          If a participant pays the option exercise price of an ISO by the
surrender of unrestricted shares of Common Stock that he or she already owns, he
or she will not recognize gain or loss on the shares surrendered. A number of
shares received equal to the number of shares surrendered will have a basis
equal to the basis of the shares surrendered, and the participant's holding
period of such shares received will include the holding period of the shares
surrendered. To the extent that the value of the shares received exceeds the
value of the shares surrendered, those shares received that represent such
excess in value will have a basis equal to zero and a holding period that will
commence on the day they are acquired. However, if a participant surrenders
shares that were acquired through the previous exercise of an ISO before the end
of the requisite holding period, the participant may recognize ordinary income
on the surrender of those shares.

          Options otherwise qualifying as ISOs will be treated as non-ISOs to
the extent that the fair market value of the shares with respect to which
incentive stock options granted after 1986 are exercisable for the first time by
a participant during any calendar year (under all of the Company's plans and
those of any of its subsidiaries) exceeds $100,000. This rule is applied by
taking the options into account in the order in which they are granted.

          Non-ISOs. A participant will not recognize income at the time that a
non-ISO is granted. At the time a non-ISO is exercised, the participant will
recognize ordinary income in an amount equal to the excess of (a) the fair
market value of the shares issued to the participant on the exercise date over
(b) the exercise price paid for the shares. At the time of sale of shares
acquired pursuant to the exercise of a non-ISO, the appreciation (or
depreciation) in value of the shares after the date of exercise will be treated
either as short-term or long-term capital gain (or loss) depending on how long
the shares have been held.

          If a participant pays the option price of a non-ISO in whole or in
part by the surrender of Common Stock that he or she already owns, he or she
will not recognize gain or loss on the shares surrendered. A number of shares
received equal to the number of shares surrendered will have a tax basis equal
to the basis of the shares surrendered, and the participant's holding period of
such shares received will include the holding period of the shares surrendered.
To the extent that the value of the shares received upon exercise exceeds the
value of the shares surrendered, the excess (reduced by the amount of any cash
paid by the participant) will be ordinary income. Furthermore, the shares
received that represent such excess in value will have a basis equal to their
fair market value and a holding period that will commence on the day after they
are acquired. However, if the shares surrendered are considered substantially
non-vested property within the meaning of Section 83 of the Code, a Section
83(b) Election (as defined below) with respect to the shares has not been made,
and certain shares received upon exercise are considered substantially
non-vested property, the participant will generally recognize ordinary income in
the year during which the restrictions terminate on the shares received.

          Share Appreciation Rights. A participant to whom a SAR is granted will
not recognize income at the time of grant of the SAR. Upon exercise of a SAR,
the participant must recognize taxable compensation income in an amount equal to
the amount or cash received and the fair market value of any shares that the
participant receives.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 29


          Restricted Shares, Restricted Share Units, Deferred Share Units,
Performance Awards, and Unrestricted Shares. In general, a participant will not
recognize income at the time of grant of restricted shares, restricted share
units, deferred share units, or performance awards, unless the participant
elects with respect to restricted shares or restricted share units to accelerate
income taxation to the date of the award pursuant to an election under Section
83(b) of the Code (a "Section 83(b) Election"). In this event, a participant
would recognize ordinary income equal to the excess of the market value of the
restricted shares over any amount the participant pays for them (in which case
subsequent gain or loss would be capital in nature). In the absence of an
election to accelerate income taxation to the date of an award, a participant
must recognize taxable compensation income equal to the value of any cash or
unrestricted shares that the participant receives. The same tax consequences
apply to performance awards and awards of unrestricted shares.

          Special Tax Provisions. Under certain circumstances, the accelerated
vesting, cash-out or accelerated lapse of restrictions on awards in connection
with a change in control of the Company might be deemed an "excess parachute
payment" for purposes of the golden parachute tax provisions of Code section
280G, and the participant may be subject to a 20% excise tax and the Company may
be denied a tax deduction. Furthermore, the Company may not be able to deduct
the aggregate compensation in excess of $1,000,000 attributable to awards that
are not performance-based" within the meaning of Code section 162(m) in certain
circumstances. The 2005 Plan is designed to permit certain awards that qualify
as performance-based compensation for this purpose.

          Special Rules Applicable to Insiders. In limited circumstances where
the sale of Common Stock received as a result of a grant or award could subject
those participants who are directors or officers of the Company subject to
Section 16(b) of the Exchange Act (collectively, "Insiders") to a lawsuit under
Section 16(b) of the Exchange Act, the tax consequences to the Insider may
differ from the tax consequences described above. In these circumstances, unless
Section 83(b) Election has been made, the principal difference (in cases where
the Insider would otherwise be currently taxed upon the participant's receipt of
the stock) usually will be to postpone valuation and taxation of the stock
received so long as the sale of the stock received could subject the Insider to
suit under Section 16(b) of the Exchange Act, but no longer than six months.

                 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

          The following documents previously filed by the Company with the
Securities and Exchange Commission (the "Commission") are incorporated herein by
reference:

               -    The Company's Annual Report on Form 10-K for the year ended
                    July 31, 2005 filed with the Commission on October 31, 2005;

               -    The Company's Quarterly Report on Form 10-Q for the quarter
                    ended October 31, 2005 filed with the Commission on December
                    15, 2005;

               -    The Company's Quarterly Report on Form 10-Q for the quarter
                    ended January 31, 2006 filed with the Commission on March
                    16, 2006;

               -    The Company's amended Quarterly Report on Form 10-Q/A
                    (Amendment No. 1) for the quarter ended October 31, 2004
                    filed with the Commission on October 31, 2005;

               -    The Company's amended Quarterly Report on Form 10-Q/A
                    (Amendment No. 3) for the quarter ended January 31, 2005
                    filed with the Commission on October 31, 2005;

               -    The Company's amended Quarterly Report on Form 10-Q/A
                    (Amendment No. 2) for the quarter ended April 30, 2005 filed
                    with the Commission on October 31, 2005;

               -    The Registrant's Current Reports on Form 8-K, as filed with
                    the Commission on August 2, 2005, August 5, 2005, August 30,
                    2005, September 30, 2005, October 13, 2005,


Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 30


                    October 31, 2005, November 14, 2005, November 17, 2005,
                    November 23, 2005, December 2, 2005, December 6, 2005,
                    December 8, 2005, December 15, 2005 (but specifically not
                    incorporating by reference herein the Form 8-K filed on
                    December 15, 2005 announcing the Company's earnings for the
                    quarter ended October 31, 2005), February 1, 2006, March 2,
                    2006 and April 18, 2006;

               -    The Company's amended Current Report on Form 8-K/A
                    (Amendment No. 2) filed with the Commission on August 2,
                    2005; and

               -    the description of the Common Stock, par value $.001 per
                    share, of the Company and the common stock purchase rights,
                    which is incorporated by reference into the Company's
                    registration statement on Form 8-A, filed with the
                    Commission on July 6, 2004, pursuant to the Securities
                    Exchange Act of 1934, as amended (the "Exchange Act") and
                    any amendment or report filed for the purpose of updating
                    such description.

          In addition, all documents filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment which indicates that all securities
offered have been sold or which de-registers all securities then remaining
unsold, shall be deemed to be incorporated by reference into this Memorandum and
to be a part hereof from the date of filing of such documents with the
Securities and Exchange Commission.

          Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Memorandum to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Memorandum.

                      USE OF PROCEEDS, TAX WITHHOLDING AND
                                    NO LIENS

          Any proceeds that the Company receives from the sale of Common Stock
pursuant to Awards will be used for general corporate purposes. Employment and
withholding taxes will apply to the income arising from Awards. Participants
will not be subject to any additional charges (other than payment of the
exercise price for Options) in connection with their Awards. Nor does the Plan
allow for any liens on any Awards, funds, or Common Stock that Participants hold
or may receive pursuant to the Plan.

                             ADDITIONAL INFORMATION

          Additional information about the Plan and its administrators may be
obtained from, and copies of the following documents or reports will be
furnished without charge upon written or oral request to the Secretary, Commerce
Energy Group, Inc., 600 Anton Boulevard, Suite 2000, Costa Mesa, California
92626; telephone number (714) 259-2500:

          -    Documents or reports incorporated by reference in this Memorandum
               (excluding exhibits to such documents or reports unless such
               exhibits are specifically incorporated by reference into such
               documents or reports);

          -    The Company's annual report to shareholders for the latest fiscal
               year; and



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 31


          -    All reports, proxy statements and other communications
               distributed to the shareholders of the Company.

          All participants shall receive, if they do not otherwise receive such
materials, copies of all reports, proxy statements and other communications
distributed to the Company's security holders generally. Such materials shall be
delivered not later than the time at which they are sent to the Company's
security holders.



                                                                       EXHIBIT C

                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

                           SECTION 83(B) ELECTION FORM

                                   ----------

Attached is an Internal Revenue Code Section 83(b) Election Form. IF YOU WISH TO
MAKE A SECTION 83(B) ELECTION, YOU MUST DO SO WITHIN 30 DAYS AFTER THE DATE THE
RESTRICTED SHARES COVERED BY THE ELECTION WERE TRANSFERRED TO YOU. In order to
make the election, you must completely fill out the attached form and file one
copy with the Internal Revenue Service office where you file your tax return. In
addition, one copy of the statement also must be submitted with your income tax
return for the taxable year in which you make this election. Finally, you also
must submit a copy of the election form to the Company within 10 days after
filing that election with the Internal Revenue Service. A Section 83(b) election
normally cannot be revoked.



                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

         ELECTION TO INCLUDE VALUE OF RESTRICTED SHARES IN GROSS INCOME
          IN YEAR OF TRANSFER UNDER INTERNAL REVENUE CODE SECTION 83(B)

                                   ----------

     Pursuant to Section 83(b) of the Internal Revenue Code, I hereby elect
within 30 days after receiving the property described herein to be taxed
immediately on its value specified in item 5 below.

1.   My General Information:

               Name: ___________________________________
               Address: ________________________________

                        ________________________________
               S.S.N.
               or T.I.N.: ______________________________

2.   Description of the property with respect to which I am making this
     election:

          60,000 shares of restricted common stock of Commerce Energy Group,
          Inc. (the "Restricted Shares").

3.   The Restricted Shares were transferred to me on March 27, 2007. This
     election relates to the 2007 calendar taxable year.

4.   The Restricted Shares are subject to the following restrictions:

          The Restricted Shares are forfeitable until they is are earned in
          accordance with Section 1 of the Commerce Energy Group, Inc. 2006
          Stock Incentive Plan ("Plan") Restricted Shares Award Agreement
          ("Award Agreement") or other Award Agreement or Plan provisions. The
          Restricted Shares generally are not transferable until my interest
          becomes vested and nonforfeitable, pursuant to the Award Agreement and
          the Plan.

5.   Fair market value:

          The fair market value at the time of transfer (determined without
          regard to any restrictions other than restrictions which by their
          terms never will lapse) of the Restricted Shares with respect to which
          I am making this election is $_____ per share.



6.   Amount paid for Restricted Shares:

          The amount I paid for the Restricted Shares is $0 per share.

7.   Furnishing statement to employer:

          A copy of this statement has been furnished to my employer,
          ______________. If the transferor of the Restricted Shares is not my
          employer, that entity also has been furnished with a copy of this
          statement.

8.   Award Agreement or Plan not affected:

          Nothing contained herein shall be held to change any of the terms or
          conditions of the Award Agreement or the Plan.

Dated: _______________, 20__.


                                                --------------------------------
                                                Taxpayer



                                                                       EXHIBIT D

                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

                           DESIGNATION OF BENEFICIARY

                                   ----------

          In connection with Award Agreements between Commerce Energy Group,
Inc. (the "Company") and _______________, an individual residing at
___________________ (the "Recipient"), the Recipient hereby designates the
person specified below as the beneficiary of the Recipient's interest in Awards
as defined in the Company's 2006 Stock Incentive Plan (the "Plan"). This
designation shall remain in effect until revoked in writing by the Recipient.

               Name of Beneficiary: _____________________________

               Address:             _____________________________

                                    _____________________________

                                    _____________________________

               Social Security No.: _____________________________

     This beneficiary designation relates to any and all of Recipient's rights
under the following Award or Awards:

          [ ]  any Award that Recipient has received under the Plan.

          [ ]  the _________________ Award that Recipient received pursuant to
               an award agreement dated _________ __, ____ between Recipient and
               the Company.

          The Recipient understands that this designation operates to entitle
the above-named beneficiary to the rights conferred by an Award from the date
this form is delivered to the Company until such date as this designation is
revoked in writing by the Recipient, including by delivery to the Company of a
written designation of beneficiary executed by the Recipient on a later date.

                                        Date:
                                              ----------------------------------


                                        By:
                                            ------------------------------------
                                             [Recipient Name]


Sworn to before me this
____ day of ____________, 200__


- ------------------------------------
Notary Public
County of
          --------------------------
State of
         ---------------------------

EX-10.6

                                                                    EXHIBIT 10.6

                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

                          STOCK OPTION AWARD AGREEMENT
                              (FOR U.S. EMPLOYEES)

                                   ----------

                                   AWARD NO. 1

          You (the "Participant") are hereby awarded the following stock option
(the "Option") to purchase Shares of Commerce Energy Group, Inc. (the
"Company"), subject to the terms and conditions set forth in this Stock Option
Award Agreement (the "Award Agreement") and in the Commerce Energy Group, Inc.
2006 Stock Incentive Plan (the "Plan"), which is attached hereto as Exhibit A. A
summary of the Plan appears in its Prospectus, which is attached as Exhibit B.
You should carefully review these documents, and consult with your personal
financial advisor, before exercising this Option.

          By executing this Award Agreement, you agree to be bound by all of the
Plan's terms and conditions as if they had been set out verbatim in this Award
Agreement. In addition, you recognize and agree that all determinations,
interpretations, or other actions respecting the Plan and this Award Agreement
will be made by the Board of Directors (the "Board") of Commerce Energy Group,
Inc. (the "Company") or any Committee appointed by the Board to administer the
Plan, and shall (in the absence of manifest bad faith or fraud) be final,
conclusive and binding on all parties, including you and your heirs and
representatives. Capitalized terms are defined in the Plan or in this Award
Agreement.

1. VARIABLE TERMS. This Option shall have, and be interpreted according to, the
following terms, subject to the provisions of the Plan in all instances:

                                   
Name of Participant:                  ERIK A. LOPEZ, SR.

Type of Stock Option:                 [ ]  Incentive Stock Option (ISO)(1)

                                      [X]  Non-Incentive Stock Option(2)

Number of Shares subject to Option:   45,000

Option Exercise Price per Share:      $2.56

Grant Date:                           March 27, 2007

Reverse Vesting (per Plan Section):   [ ]  Allowed in accordance with Section 6
                                           of the Plan.

                                      [X]  Not allowed.



- ----------
(1)  If an ISO is awarded to a person owning more than 10% of the voting power
     of all classes of stock of the Company or of any Subsidiary, then the term
     of the Option cannot exceed 5 years and the exercise price must be at least
     110% of the Fair Market Value (100% for any other employee who is receiving
     ISO awards).

(2)  The exercise price of a non-ISO must be at least 100% of the Fair Market
     Value.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Option Award Agreement for Employees
Page 2


2. VESTING SCHEDULE: Establishes the Participant's rights to exercise this
Option with respect to the Number of Shares stated above, subject to
acceleration per Section 3 below and per your employment agreement with the
Company dated March 26, 2007 and to any shareholder approval requirement set
forth in the Plan.

               [ ]  ___% on Grant Date.

               [X]  15,000 shares on each of the first three anniversary dates
                    of the Participant's Continuous Service after the
                    Patricipant's first date of employment, March 26, 2008,
                    March 26, 2009 and March 26, 2010.

Lifetime Transfer: [ ]  Allowed pursuant to Section 9 below only for
                        Non-Incentive Stock Option.

Expiration Date:   [X]  6 years (1-9) after Grant Date; or

                   [ ]  10 years after Grant Date

3. ACCELERATED VESTING; CHANGE IN CORPORATE CONTROL. To the extent you have not
previously vested in your rights with respect to this Award, your Award will
become -

[ ]  ___% vested if your Continuous Service ends due to your death or
     "disability" within the meaning of Section 409A of the Code;

[ ]  ___% vested if your Continuous Service ends due to your retirement at or
     after you have attained the age of ___ and completed at least ___ full
     years of Continuous Service;

[ ]  according to the following schedule if your Continuous Service ends due to
     an Involuntary Termination that occurs within the one year period following
     a Change in Control:



Date on which Your Involuntary Termination        Portion of Your Award
  Occurs (by reference to Date of Award)     As to which Vesting Accelerates
- ------------------------------------------   -------------------------------
                                          
Before 1st Anniversary                                       0%
Between 1st and 2nd Anniversary                            ___%
After 2nd Anniversary                                      ___%


4. TERM OF OPTION. The term of the Option will expire at 5:00 p.m. (P.D.T. or
P.S.T., as applicable) on the Expiration Date.

5. MANNER OF EXERCISE. The Option shall be exercised in the manner set forth in
the Plan, using the exercise form attached hereto as Exhibit C. The amount of
Shares for which the Option may be exercised is cumulative; that is, if you fail
to exercise the Option for all of the Shares vested under the Option during any
period set forth above, then any Shares subject to the Option that are not
exercised during such period may be exercised during any subsequent period,
until the expiration or



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Option Award Agreement for Employees
Page 3


termination of the Option pursuant to Sections 2 and 7 of this Award Agreement
and the terms of the Plan. Fractional Shares may not be purchased.

6. SPECIAL ISO PROVISIONS. If designated as an ISO, this Option shall be treated
as an ISO to the extent allowable under Section 422 of the Code, and shall
otherwise be treated as a Non-ISO. If you sell or otherwise dispose of Shares
acquired upon the exercise of an ISO within 1 year from the date such Shares
were acquired or 2 years from the Grant Date, you agree to deliver a written
report to the Company within 10 days following the sale or other disposition of
such Shares detailing the net proceeds of such sale or disposition.

7. TERMINATION OF CONTINUOUS SERVICE. If your Continuous Service with the
Company and/or its Affiliates (the "Company Group") is terminated for any
reason, this Option shall terminate on the date on which you cease to have any
right to exercise the Option pursuant to the terms and conditions set forth in
Section 6 of the Plan.

8. LONG-TERM CONSIDERATION FOR AWARD. The Participant recognizes and agrees that
the Company's key consideration in granting this Award is securing the long-term
commitment of the Participant to serve as an officer of the Company who will
advance and promote the business interests and objectives of the Company Group.
Accordingly, the Participant agrees that this Award shall be subject to the
terms and conditions set forth in Section 25 of the Plan (relating to the
termination, rescission and recapture if you violate certain commitments made
therein to the Company Group), as well as to the following terms and conditions
as material and indivisible consideration for this Award:

          (a) Fiduciary Duty. During his or her employment with the Company
Group the Participant shall devote his or her full energies, abilities,
attention and business time to the performance of his or her job
responsibilities and shall not engage in any activity which conflicts or
interferes with, or in any way compromises, his or her performance of such
responsibilities.

          (b) Confidential Information. The Participant recognizes that by
virtue of his or her employment with the Company Group, he or she will be
granted otherwise prohibited access to confidential information and proprietary
data which are not known, and not readily accessible to the competitors of the
Company Group. This information (the "Confidential Information") includes, but
is not limited to, current and prospective customers; the identity of key
contacts at such customers; customers' particularized preferences and needs;
marketing strategies and plans; financial data; personnel data; compensation
data; proprietary procedures and processes; and other unique and specialized
practices, programs and plans of the Company Group and their respective
customers and prospective customers. The Participant recognizes that this
Confidential Information constitutes a valuable property of the Company Group,
developed over a significant period of time and at substantial expense.
Accordingly, the Participant agrees that he or she shall not, at any time during
or after his or her employment with the Company Group, divulge such Confidential
Information or make use of it for his or her own purposes or the purposes of any
person or entity other than the Company Group.

          (c) Non-Solicitation of Customers. The Participant recognizes that by
virtue of his or her employment with the Company Group he or she will be
introduced to and involved in the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Option Award Agreement for Employees
Page 4


solicitation and servicing of existing customers of the Company Group and new
customers obtained by the Company Group during his or her employment. The
Participant understands and agrees that all efforts expended in soliciting and
servicing such customers shall be for the permanent benefit of the Company
Group. The Participant further agrees that during his or her employment with the
Company Group the Participant will not engage in any conduct which could in any
way jeopardize or disturb any of the customer relationships of the Company
Group. The Participant also recognizes the legitimate interest of the Company
Group in protecting, for a reasonable period of time after his or her employment
with the Company Group, the customers of the Company Group. Accordingly, the
Participant agrees that, for a period beginning on the date hereof and ending
one (1) year after termination of Participant's employment with the Company
Group, regardless of the reason for such termination, the Participant shall not,
directly or indirectly, without the prior written consent of the Chief Executive
Officer of the Company, market, offer, sell or otherwise furnish any products or
services similar to, or otherwise competitive with, those offered by the Company
Group to any customer of the Company Group.

          (d) Non-Solicitation of Employees. The Participant recognizes the
substantial expenditure of time and effort which the Company Group devotes to
the recruitment, hiring, orientation, training and retention of its employees.
Accordingly, the Participant agrees that, for a period beginning on the date
hereof and ending two (2) years after termination of Participant's employment
with the Company Group, regardless of the reason for such termination, the
Participant shall not, directly or indirectly, for himself or herself or on
behalf of any other person or entity, solicit, offer employment to, hire or
otherwise retain the services of any employee of the Company Group.

          (e) Survival of Commitments; Potential Recapture of Award and
Proceeds. The Participant acknowledges and agrees that the terms and conditions
of this Section regarding confidentiality and non-solicitation shall survive
both (i) the termination of Participant's employment with the Company Group for
any reason, and (ii) the termination of the Plan, for any reason. The
Participant acknowledges and agrees that the grant of Options in this Award
Agreement is just and adequate consideration for the survival of the
restrictions set forth herein, and that the Company Group may pursue any or all
of the following remedies if the Participant either violates the terms of this
Section or succeeds for any reason in invalidating any part of it (it being
understood that the invalidity of any term hereof would result in a failure of
consideration for the Award):

          (i)  declaration that the Award is null and void and of no further
               force or effect;

          (ii) recapture of any cash paid or Shares issued to the Participant,
               or any designee or beneficiary of the Participant, pursuant to
               the Award;

          (iii) recapture of the proceeds, plus reasonable interest, with
               respect to any Shares that are both issued pursuant to this Award
               and sold or otherwise disposed of by the Participant, or any
               designee or beneficiary of the Participant.

The remedies provided above are not intended to be exclusive, and the Company
Group may seek such other remedies as are provided by law, including equitable
relief.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Option Award Agreement for Employees
Page 5


          (f) Acknowledgement. The Participant acknowledges and agrees that his
or her adherence to the foregoing requirements will not prevent him or her from
engaging in his or her chosen occupation and earning a satisfactory livelihood
following the termination of his or her employment with the Company Group.

9. DESIGNATION OF BENEFICIARY. Notwithstanding anything to the contrary
contained herein or in the Plan, following the execution of this Award
Agreement, you may expressly designate a beneficiary (the "Beneficiary") to his
or her interest in the Option awarded hereby. You shall designate the
Beneficiary by completing and executing a designation of beneficiary agreement
substantially in the form attached hereto as Exhibit D (the "Designation of
Beneficiary") and delivering an executed copy of the Designation of Beneficiary
to the Company.

10. RESTRICTIONS ON TRANSFER. This Award Agreement may not be sold, pledged, or
otherwise transferred without the prior written consent of the Committee.
Notwithstanding the foregoing, the Participant may transfer this Option if
allowed under Section 1 for a Non-Incentive Stock Option (i) by instrument to an
inter vivos or testamentary trust (or other entity) in which each beneficiary is
a permissible gift recipient, as such is set forth in subsection (ii) of this
Section, or (ii) by gift to charitable institutions or by gift or transfer for
consideration to any of the following relatives of the Participant (or to an
inter vivos trust, testamentary trust or other entity primarily for the benefit
of the following relatives of the Participant): any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former spouse, domestic
partner, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, and shall include adoptive
relationships. Any transferee of the Participant's rights shall succeed and be
subject to all of the terms of this Award Agreement and the Plan.

11. TAXES. By signing this Award Agreement, you acknowledge that you shall be
solely responsible for the satisfaction of any taxes that may arise (including
taxes arising under Sections 409A or 4999 of the Code), and that neither the
Company Group nor the Administrator shall have any obligation whatsoever to pay
such taxes. Notwithstanding anything to the contrary herein, upon exercise of an
Option, certificates for Shares shall not be delivered to you unless you have
made arrangements satisfactory to the Committee to satisfy tax-withholding
obligations.

12. NOTICES. Any notice or communication required or permitted by any provision
of this Award Agreement to be given to you shall be in writing and shall be
delivered personally or sent by certified mail, return receipt requested,
addressed to you at the last address that the Company had for you on its
records. Each party may, from time to time, by notice to the other party hereto,
specify a new address for delivery of notices relating to this Award Agreement.
Any such notice shall be deemed to be given as of the date such notice is
personally delivered or properly mailed.

13. BINDING EFFECT. Except as otherwise provided in this Award Agreement or in
the Plan, every covenant, term and provision of this Award Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, legatees, legal representatives, successors, transferees, and assigns.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Option Award Agreement for Employees
Page 6


14. MODIFICATIONS. This Award Agreement may be modified or amended at any time,
in accordance with Section 15 of the Plan and provided that you must consent in
writing to any modification that adversely alters or impairs any rights or
obligations under this Award Agreement.

15. HEADINGS. Section and other headings contained in this Award Agreement are
for reference purposes only and are not intended to describe, interpret, define
or limit the scope or intent of this Award Agreement or any provision hereof.

16. SEVERABILITY. Every provision of this Award Agreement and of the Plan is
intended to be severable. If any term hereof is illegal or invalid for any
reason, such illegality or invalidity shall not affect the validity or legality
of the remaining terms of this Award Agreement.

17. COUNTERPARTS. This Award Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.

18. PLAN GOVERNS. By signing this Award Agreement, you acknowledge that you have
received a copy of the Plan and that your Award Agreement is subject to all the
provisions contained in the Plan, the provisions of which are made a part of
this Award Agreement and your Award is subject to all interpretations,
amendments, rules and regulations which from time to time may be promulgated and
adopted pursuant to the Plan. In the event of a conflict between the provisions
of this Award Agreement and those of the Plan, the provisions of the Plan shall
control.

19. GOVERNING LAW. The laws of the State of Delaware shall govern the validity
of this Award Agreement, the construction of its terms, and the interpretation
of the rights and duties of the parties hereto.

20. NOT A CONTRACT OF EMPLOYMENT. By executing this Award Agreement you
acknowledge and agree that (i) any person who is terminated before full vesting
of an award, such as the one granted to you by this Award Agreement, could claim
that he or she was terminated to preclude vesting; (ii) you promise never to
make such a claim; (iii) nothing in this Award Agreement or the Plan confers on
you any right to continue an employment, service or consulting relationship with
the Company Group, nor shall it affect in any way your right or the right of the
Company Group, as applicable, to terminate your employment, service, or
consulting relationship at any time, with or without Cause; and (iv) the Company
would not have granted this Award to you but for these acknowledgements and
agreements.

21. EMPLOYMENT AGREEMENT PROVISION By executing this Award, you acknowledge and
agree that your rights upon a termination of employment before full vesting of
this Award will be determined under Section 5 of your employment agreement with
the Company dated as of March 26, 2007.

22. INVESTMENT PURPOSES. You acknowledge that you are receiving your Options for
investment purposes only and without any present intention of selling or
distributing the Options or the Shares underlying such Options.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Option Award Agreement for Employees
Page 7


          BY YOUR SIGNATURE BELOW, along with the signature of the Company's
representative, you and the Company agree that the Option is awarded under and
governed by the terms and conditions of this Award Agreement and the Plan.

                                        COMMERCE ENERGY GROUP, INC.


                                        By: /S/ STEVEN S. BOSS
                                            ------------------------------------
                                        Name: Steven S. Boss
                                        Title: Chief Exeuctive Officer


                                        PARTICIPANT

                                        The undersigned Participant hereby
                                        accepts the terms of this Award
                                        Agreement and the Plan.


                                        By: /S/ ERIK A. LOPEZ, SR.
                                            ------------------------------------
                                        Name of Participant: Erik A. Lopez, Sr.



                                                                       EXHIBIT A

                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

1. ESTABLISHMENT, PURPOSE, AND TYPES OF AWARDS

     Commerce Energy Group, Inc. (the "Company") hereby establishes this
equity-based incentive compensation plan to be known as the "Commerce Energy
Group, Inc. 2006 Stock Incentive Plan" (hereinafter referred to as the "Plan"),
in order to provide incentives and awards to select employees, directors,
consultants, and advisors of the Company and its Affiliates.

     The Plan permits the granting of the following types of awards ("Awards"),
according to the Sections of the Plan listed here:

     Section 6  Options
     Section 7  Share Appreciation Rights
     Section 8  Restricted Shares, Restricted Share Units, and Unrestricted
                Shares
     Section 9  Deferred Share Units
     Section 10 Performance Awards

     The Plan is not intended to affect and shall not affect any stock options,
equity-based compensation, or other benefits that the Company or its Affiliates
may have provided, or may separately provide in the future pursuant to any
agreement, plan, or program that is independent of this Plan.

2. DEFINED TERMS

     Terms in the Plan that begin with an initial capital letter have the
defined meaning set forth in APPENDIX A, unless defined elsewhere in this Plan
or the context of their use clearly indicates a different meaning.

3. SHARES SUBJECT TO THE PLAN

     Subject to the provisions of Section 13 of the Plan, the maximum number of
Shares that the Company may issue for all Awards is 1,453,334 Shares, provided
that the Company shall not make additional awards under the Commonwealth Energy
Corporation 1999 Equity Incentive Plan, as amended and assumed by Commerce
Energy Group, Inc. For all Awards, the Shares issued pursuant to the Plan may be
authorized but unissued Shares, or Shares that the Company has reacquired or
otherwise holds in treasury.

     Shares that are subject to an Award that for any reason expires, is
forfeited, is cancelled, or becomes unexercisable, and Shares that are for any
other reason not paid or delivered under the Plan shall again, except to the
extent prohibited by Applicable Law, be available for subsequent Awards under
the Plan. In addition, the Committee may make future Awards with respect to
Shares that the Company retains from otherwise delivering pursuant to an Award
either (i) as payment of the exercise price of an Award, or (ii) in order to
satisfy the withholding or employment taxes due upon the grant, exercise,
vesting or distribution of an Award. Notwithstanding the foregoing, but subject
to adjustments pursuant to Section 13 below, the number of Shares that are
available for ISO Awards shall be determined, to the extent required under
applicable tax laws, by reducing the number of Shares designated in the
preceding paragraph by the number of Shares granted pursuant to Awards (whether
or not Shares are issued pursuant to such Awards), provided that any Shares that
are either issued or purchased under the Plan and forfeited back to the Plan, or
surrendered in payment of the Exercise Price for an Award shall be available for
issuance pursuant to future ISO Awards.



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2006 Stock Incentive Plan
Page 2


4. ADMINISTRATION

     (a) General. The Committee shall administer the Plan in accordance with its
terms, provided that the Board may act in lieu of the Committee on any matter.
The Committee shall hold meetings at such times and places as it may determine
and shall make such rules and regulations for the conduct of its business as it
deems advisable. In the absence of a duly appointed Committee or if the Board
otherwise chooses to act in lieu of the Committee, the Board shall function as
the Committee for all purposes of the Plan.

     (b) Committee Composition. The Board shall appoint the members of the
Committee. If and to the extent permitted by Applicable Law, the Committee may
authorize one or more Reporting Persons (or other officers) to make Awards to
Eligible Persons who are not Reporting Persons (or other officers whom the
Committee has specifically authorized to make Awards). The Board may at any time
appoint additional members to the Committee, remove and replace members of the
Committee with or without Cause, and fill vacancies on the Committee however
caused.

     (c) Powers of the Committee. Subject to the provisions of the Plan, the
Committee shall have the authority, in its sole discretion:

          (i) to determine Eligible Persons to whom Awards shall be granted from
     time to time and the number of Shares, units, or SARs to be covered by each
     Award;

          (ii) to determine, from time to time, the Fair Market Value of Shares;

          (iii) to determine, and to set forth in Award Agreements, the terms
     and conditions of all Awards, including any applicable exercise or purchase
     price, the installments and conditions under which an Award shall become
     vested (which may be based on performance), terminated, expired, cancelled,
     or replaced, and the circumstances for vesting acceleration or waiver of
     forfeiture restrictions, and other restrictions and limitations;

          (iv) to approve the forms of Award Agreements and all other documents,
     notices and certificates in connection therewith which need not be
     identical either as to type of Award or among Participants;

          (v) to construe and interpret the terms of the Plan and any Award
     Agreement, to determine the meaning of their terms, and to prescribe,
     amend, and rescind rules and procedures relating to the Plan and its
     administration; and

          (vi) in order to fulfill the purposes of the Plan and without amending
     the Plan, modify, cancel, or waive the Company's rights with respect to any
     Awards, to adjust or to modify Award Agreements for changes in Applicable
     Law, and to recognize differences in foreign law, tax policies, or customs;
     and

          (vii) to make all other interpretations and to take all other actions
     that the Committee may consider necessary or advisable to administer the
     Plan or to effectuate its purposes.

     Subject to Applicable Law and the restrictions set forth in the Plan, the
Committee may delegate administrative functions to individuals who are Reporting
Persons, officers, or Employees of the Company or its Affiliates.

     (d) Deference to Committee Determinations. The Committee shall have the
discretion to interpret or construe ambiguous, unclear, or implied (but omitted)
terms in any fashion it deems to be appropriate in its sole discretion, and to
make any findings of fact needed in the administration of the Plan or Award
Agreements. The Committee's prior exercise of its discretionary authority shall
not obligate it to exercise its authority in a like fashion thereafter. The
Committee's interpretation and construction of any provision of the Plan, or of
any Award or Award Agreement, shall be final, binding, and conclusive. The
validity of any such interpretation, construction, decision or finding of fact
shall not be given de novo review if challenged in court, by arbitration, or in
any other forum, and shall be upheld unless clearly made in bad faith or
materially affected by fraud.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
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     (e) No Liability; Indemnification. Neither the Board nor any Committee
member, nor any Person acting at the direction of the Board or the Committee,
shall be liable for any act, omission, interpretation, construction or
determination made in good faith with respect to the Plan, any Award or any
Award Agreement. The Company and its Affiliates shall pay or reimburse any
member of the Committee, as well as any Director, Employee, or Consultant who
takes action in connection with the Plan, for all expenses incurred with respect
to the Plan, and to the full extent allowable under Applicable Law shall
indemnify each and every one of them for any claims, liabilities, and costs
(including reasonable attorney's fees) arising out of their good faith
performance of duties under the Plan. The Company and its Affiliates may obtain
liability insurance for this purpose.

5. ELIGIBILITY

     (a) General Rule. The Committee may grant ISOs only to Employees (including
officers who are Employees) of the Company or an Affiliate that is a "parent
corporation" or "subsidiary corporation" within the meaning of Section 424 of
the Code, and may grant all other Awards to any Eligible Person. A Participant
who has been granted an Award may be granted an additional Award or Awards if
the Committee shall so determine, if such person is otherwise an Eligible Person
and if otherwise in accordance with the terms of the Plan.

     (b) Grant of Awards. Subject to the express provisions of the Plan, the
Committee shall determine from the class of Eligible Persons those individuals
to whom Awards under the Plan may be granted, the number of Shares subject to
each Award, the price (if any) to be paid for the Shares or the Award and, in
the case of Performance Awards, in addition to the matters addressed in Section
10 below, the specific objectives, goals and performance criteria that further
define the Performance Award. Each Award shall be evidenced by an Award
Agreement signed by the Company and, if required by the Committee, by the
Participant. The Award Agreement shall set forth the material terms and
conditions of the Award established by the Committee, and each Award shall be
subject to the terms and conditions set forth in Sections 23, 24, and 25 unless
otherwise specifically provided in an Award Agreement.

     (c) Limits on Awards. During any calendar year, no Participant may receive
Options and SARs that relate to more than 1,000,000 Shares. The Committee will
adjust this limitation pursuant to Section 13 below.

     (d) Replacement Awards. Subject to Applicable Laws (including any
associated Shareholder approval requirements), the Committee may, in its sole
discretion and upon such terms as it deems appropriate, require as a condition
of the grant of an Award to a Participant that the Participant surrender for
cancellation some or all of the Awards that have previously been granted to the
Participant under this Plan or otherwise. An Award that is conditioned upon such
surrender may or may not be the same type of Award, may cover the same (or a
lesser or greater) number of Shares as such surrendered Award, may have other
terms that are determined without regard to the terms or conditions of such
surrendered Award, and may contain any other terms that the Committee deems
appropriate. In the case of Options, these other terms may not involve an
Exercise Price that is lower than the Exercise Price of the surrendered Option
unless the Company's shareholders approve the grant itself or the program under
which the grant is made pursuant to the Plan.

6. OPTION AWARDS

     (a) Types; Documentation. The Committee may in its discretion grant ISOs to
any Employee and Non-ISOs to any Eligible Person, and shall evidence any such
grants in an Award Agreement that is delivered to the Participant. Each Option
shall be designated in the Award Agreement as an ISO or a Non-ISO, and the same
Award Agreement may grant both types of Options. At the sole discretion of the
Committee, any Option may be exercisable, in whole or in part, immediately upon
the grant thereof, or only after the occurrence of a specified event, or only in
installments, which installments may vary. Options granted under the Plan may
contain such terms and provisions not inconsistent with the Plan that the
Committee shall deem advisable in its sole and absolute discretion.

     (b) ISO $100,000 Limitation. To the extent that the aggregate Fair Market
Value of Shares with respect to which Options designated as ISOs first become
exercisable by a Participant in any calendar year (under this Plan and any other
plan of the Company or any Affiliate) exceeds $100,000, such excess Options
shall be treated as Non-ISOs. For purposes of determining whether the $100,000
limit is exceeded, the Fair Market Value of the Shares subject to



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 4


an ISO shall be determined as of the Grant Date. In reducing the number of
Options treated as ISOs to meet the $100,000 limit, the most recently granted
Options shall be reduced first. In the event that Section 422 of the Code is
amended to alter the limitation set forth therein, the limitation of this
Section 6(b) shall be automatically adjusted accordingly.

     (c) Term of Options. Each Award Agreement shall specify a term at the end
of which the Option automatically expires, subject to earlier termination
provisions contained in Section 6(h) hereof; provided, that, the term of any
Option may not exceed ten years from the Grant Date. In the case of an ISO
granted to an Employee who is a Ten Percent Holder on the Grant Date, the term
of the ISO shall not exceed five years from the Grant Date.

     (d) Exercise Price. The exercise price of an Option shall be determined by
the Committee in its sole discretion and shall be set forth in the Award
Agreement, provided that (i) if an ISO is granted to an Employee who on the
Grant Date is a Ten Percent Holder, the per Share exercise price shall not be
less than 110% of the Fair Market Value per Share on the Grant Date, and (ii)
for all other Options, such per Share exercise price shall not be less than 100%
of the Fair Market Value per Share on the Grant Date. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of the federal securities laws applicable to proxy statement
disclosures.

     (e) Exercise of Option. The times, circumstances and conditions under which
an Option shall be exercisable shall be determined by the Committee in its sole
discretion and set forth in the Award Agreement. The Committee shall have the
discretion to determine whether and to what extent the vesting of Options shall
be tolled during any unpaid leave of absence; provided, however, that in the
absence of such determination, vesting of Options shall be tolled during any
such leave approved by the Company.

     (f) Minimum Exercise Requirements. An Option may not be exercised for a
fraction of a Share. The Committee may require in an Award Agreement that an
Option be exercised as to a minimum number of Shares, provided that such
requirement shall not prevent a Participant from purchasing the full number of
Shares as to which the Option is then exercisable.

     (g) Methods of Exercise. Prior to its expiration pursuant to the terms of
the applicable Award Agreement, and subject to the times, circumstances and
conditions for exercise contained in the applicable Award Agreement, each Option
may be exercised, in whole or in part (provided that the Company shall not be
required to issue fractional shares), by delivery of written notice of exercise
to the secretary of the Company accompanied by the full exercise price of the
Shares being purchased. In the case of an ISO, the Committee shall determine the
acceptable methods of payment on the Grant Date and it shall be included in the
applicable Award Agreement. The methods of payment that the Committee may in its
discretion accept or commit to accept in an Award Agreement include:

          (i) cash or check payable to the Company (in U.S. dollars);

          (ii) other Shares that (A) are owned by the Participant who is
     purchasing Shares pursuant to an Option, (B) have a Fair Market Value on
     the date of surrender equal to the aggregate exercise price of the Shares
     as to which the Option is being exercised, (C) were not acquired by such
     Participant pursuant to the exercise of an Option, unless such Shares have
     been owned by such Participant for at least six months or such other period
     as the Committee may determine, (D) are all, at the time of such surrender,
     free and clear of any and all claims, pledges, liens and encumbrances, or
     any restrictions which would in any manner restrict the transfer of such
     shares to or by the Company (other than such restrictions as may have
     existed prior to an issuance of such Shares by the Company to such
     Participant), and (E) are duly endorsed for transfer to the Company;

          (iii) a cashless exercise program that the Committee may approve, from
     time to time in its discretion, pursuant to which a Participant may
     concurrently provide irrevocable instructions (A) to such Participant's
     broker or dealer to effect the immediate sale of the purchased Shares and
     remit to the Company, out of the sale proceeds available on the settlement
     date, sufficient funds to cover the exercise price of the Option plus all
     applicable taxes required to be withheld by the Company by reason of such
     exercise, and (B) to the Company to deliver the certificates for the
     purchased Shares directly to such broker or dealer in order to complete the
     sale; or



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 5


          (iv) any combination of the foregoing methods of payment.

     The Company shall not be required to deliver Shares pursuant to the
exercise of an Option until payment of the full exercise price therefore is
received by the Company.

     (h) Termination of Continuous Service. The Committee may establish and set
forth in the applicable Award Agreement the terms and conditions on which an
Option shall remain exercisable, if at all, following termination of a
Participant's Continuous Service. The Committee may waive or modify these
provisions at any time. To the extent that a Participant is not entitled to
exercise an Option at the date of his or her termination of Continuous Service,
or if the Participant (or other person entitled to exercise the Option) does not
exercise the Option to the extent so entitled within the time specified in the
Award Agreement or below (as applicable), the Option shall terminate and the
Shares underlying the unexercised portion of the Option shall revert to the Plan
and become available for future Awards. In no event may any Option be exercised
after the expiration of the Option term as set forth in the Award Agreement.

     The following provisions shall apply to the extent an Award Agreement does
not specify the terms and conditions upon which an Option shall terminate when
there is a termination of a Participant's Continuous Service:

          (i) Termination other than Upon Disability or Death or for Cause. In
     the event of termination of a Participant's Continuous Service (other than
     as a result of Participant's death, disability, retirement or termination
     for Cause), the Participant shall have the right to exercise an Option at
     any time within 90 days following such termination to the extent the
     Participant was entitled to exercise such Option at the date of such
     termination.

          (ii) Disability. In the event of termination of a Participant's
     Continuous Service as a result of his or her being Disabled, the
     Participant shall have the right to exercise an Option at any time within
     one year following such termination to the extent the Participant was
     entitled to exercise such Option at the date of such termination.

          (iii) Retirement. In the event of termination of a Participant's
     Continuous Service as a result of Participant's retirement, the Participant
     shall have the right to exercise the Option at any time within six months
     following such termination to the extent the Participant was entitled to
     exercise such Option at the date of such termination.

          (iv) Death. In the event of the death of a Participant during the
     period of Continuous Service since the Grant Date of an Option, or within
     thirty days following termination of the Participant's Continuous Service,
     the Option may be exercised, at any time within one year following the date
     of the Participant's death, by the Participant's estate or by a person who
     acquired the right to exercise the Option by bequest or inheritance, but
     only to the extent the right to exercise the Option had vested at the date
     of death or, if earlier, the date the Participant's Continuous Service
     terminated.

          (v) Cause. If the Committee determines that a Participant's Continuous
     Service terminated due to Cause, the Participant shall immediately forfeit
     the right to exercise any Option, and it shall be considered immediately
     null and void.

     (i) Reverse Vesting. The Committee in its sole discretion may allow a
Participant to exercise unvested Options, in which case the Shares then issued
shall be Restricted Shares having analogous vesting restrictions to the unvested
Options.

     (j) Buyout Provisions. The Committee may at any time offer to buy out an
Option, in exchange for a payment in cash or Shares, based on such terms and
conditions as the Committee shall establish and communicate to the Participant
at the time that such offer is made.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 6


7. SHARE APPRECIATE RIGHTS (SARS)

     (a) Grants. The Committee may in its discretion grant Share Appreciation
Rights to any Eligible Person, in any of the following forms:

          (i) SARs related to Options. The Committee may grant SARs either
     concurrently with the grant of an Option or with respect to an outstanding
     Option, in which case the SAR shall extend to all or a portion of the
     Shares covered by the related Option. An SAR shall entitle the Participant
     who holds the related Option, upon exercise of the SAR and surrender of the
     related Option, or portion thereof, to the extent the SAR and related
     Option each were previously unexercised, to receive payment of an amount
     determined pursuant to Section 7(e) below. Any SAR granted in connection
     with an ISO will contain such terms as may be required to comply with the
     provisions of Section 422 of the Code and the regulations promulgated
     thereunder.

          (ii) SARs Independent of Options. The Committee may grant SARs which
     are independent of any Option subject to such conditions as the Committee
     may in its discretion determine, which conditions will be set forth in the
     applicable Award Agreement.

          (iii) Limited SARs. The Committee may grant SARs exercisable only upon
     or in respect of a Change in Control or any other specified event, and such
     limited SARs may relate to or operate in tandem or combination with or
     substitution for Options or other SARs, or on a stand-alone basis, and may
     be payable in cash or Shares based on the spread between the exercise price
     of the SAR, and (A) a price based upon or equal to the Fair Market Value of
     the Shares during a specified period, at a specified time within a
     specified period before, after or including the date of such event, or (B)
     a price related to consideration payable to Company's shareholders
     generally in connection with the event.

     (b) Exercise Price. The per Share exercise price of an SAR shall be
determined in the sole discretion of the Committee, shall be set forth in the
applicable Award Agreement, and shall be no less than 100% of the Fair Market
Value of one Share. The exercise price of an SAR related to an Option shall be
the same as the exercise price of the related Option. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of federal securities laws applicable to proxy statement
disclosures.

     (c) Exercise of SARs. Unless the Award Agreement otherwise provides, an SAR
related to an Option will be exercisable at such time or times, and to the
extent, that the related Option will be exercisable; provided that the Award
Agreement shall not, without the approval of the shareholders of the Company,
provide for a vesting period for the exercise of the SAR that is more favorable
to the Participant than the exercise period for the related Option. An SAR may
not have a term exceeding ten years from its Grant Date. An SAR granted
independently of any other Award will be exercisable pursuant to the terms of
the Award Agreement, but shall not, without the approval of the shareholders of
the Company, provide for a vesting period for the exercise of the SAR that is
more favorable to the Participant than the exercise period for the related
Option. Whether an SAR is related to an Option or is granted independently, the
SAR may only be exercised when the Fair Market Value of the Shares underlying
the SAR exceeds the exercise price of the SAR.

     (d) Effect on Available Shares. All SARs that may be settled in shares of
the Company's stock shall be counted in full against the number of shares
available for award under the Plan, regardless of the number of shares actually
issued upon settlement of the SARs.

     (e) Payment. Upon exercise of an SAR related to an Option and the attendant
surrender of an exercisable portion of any related Award, the Participant will
be entitled to receive payment of an amount determined by multiplying --

          (i) the excess of the Fair Market Value of a Share on the date of
     exercise of the SAR over the exercise price per Share of the SAR, by

          (ii) the number of Shares with respect to which the SAR has been
     exercised.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 7


     Notwithstanding the foregoing, an SAR granted independently of an Option
(i) may limit the amount payable to the Participant to a percentage, specified
in the Award Agreement but not exceeding one-hundred percent (100%), of the
amount determined pursuant to the preceding sentence, and (ii) shall be subject
to any payment or other restrictions that the Committee may at any time impose
in its discretion, including restrictions intended to conform the SARs with
Section 409A of the Code.

     (f) Form and Terms of Payment. Subject to Applicable Law, the Committee
may, in its sole discretion, settle the amount determined under Section 7(e)
above solely in cash, solely in Shares (valued at their Fair Market Value on the
date of exercise of the SAR), or partly in cash and partly in Shares, with cash
paid in lieu of fractional shares. Unless otherwise provided in an Award
Agreement, all SARs shall be settled in Shares as soon as practicable after
exercise.

     (g) Termination of Employment or Consulting Relationship. The Committee
shall establish and set forth in the applicable Award Agreement the terms and
conditions on which an SAR shall remain exercisable, if at all, following
termination of a Participant's Continuous Service. The provisions of Section
6(h) above shall apply to the extent an Award Agreement does not specify the
terms and conditions upon which an SAR shall terminate when there is a
termination of a Participant's Continuous Service.

     (h) Buy out. The Committee has the same discretion to buy out SARs as it
has to take such actions pursuant to Section 6(j) above with respect to Options.

8. RESTRICTED SHARES, RESTRICTED SHARE UNITS, AND UNRESTRICTED SHARES

     (a) Grants. The Committee may in its sole discretion grant restricted
shares ("Restricted Shares") to any Eligible Person and shall evidence such
grant in an Award Agreement that is delivered to the Participant and that sets
forth the number of Restricted Shares, the purchase price for such Restricted
Shares (if any), and the terms upon which the Restricted Shares may become
vested. In addition, the Company may in its discretion grant the right to
receive Shares after certain vesting requirements are met ("Restricted Share
Units") to any Eligible Person and shall evidence such grant in an Award
Agreement that is delivered to the Participant which sets forth the number of
Shares (or formula, that may be based on future performance or conditions, for
determining the number of Shares) that the Participant shall be entitled to
receive upon vesting and the terms upon which the Shares subject to a Restricted
Share Unit may become vested. The Committee may condition any Award of
Restricted Shares or Restricted Share Units to a Participant on receiving from
the Participant such further assurances and documents as the Committee may
require to enforce the restrictions. In addition, the Committee may grant Awards
hereunder in the form of unrestricted shares ("Unrestricted Shares"), which
shall vest in full upon the date of grant or such other date as the Committee
may determine or which the Committee may issue pursuant to any program under
which one or more Eligible Persons (selected by the Committee in its sole
discretion) elect to receive Unrestricted Shares in lieu of cash bonuses that
would otherwise be paid.

     (b) Vesting and Forfeiture. The Committee shall set forth in an Award
Agreement granting Restricted Shares or Restricted Share Units, the terms and
conditions under which the Participant's interest in the Restricted Shares or
the Shares subject to Restricted Share Units will become vested and
non-forfeitable. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, upon termination of a Participant's Continuous
Service for any other reason, the Participant shall forfeit his or her
Restricted Shares and Restricted Share Units; provided that if a Participant
purchases the Restricted Shares and forfeits them for any reason, the Company
shall return the purchase price to the Participant only if and to the extent set
forth in an Award Agreement.

     (c) Issuance of Restricted Shares Prior to Vesting. The Company shall issue
stock certificates that evidence Restricted Shares pending the lapse of
applicable restrictions, and that bear a legend making appropriate reference to
such restrictions. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, the Company or a third party that the Company
designates shall hold such Restricted Shares and any dividends that accrue with
respect to Restricted Shares pursuant to Section 8(e) below.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 8


     (d) Issuance of Shares upon Vesting. As soon as practicable after vesting
of a Participant's Restricted Shares (or Shares underlying Restricted Share
Units) and the Participant's satisfaction of applicable tax withholding
requirements, the Company shall release to the Participant, free from the
vesting restrictions, one Share for each vested Restricted Share (or issue one
Share free of the vesting restriction for each vested Restricted Share Unit),
unless an Award Agreement provides otherwise. No fractional shares shall be
distributed, and cash shall be paid in lieu thereof.

     (e) Dividends Payable on Vesting. Whenever Shares are released to a
Participant or duly-authorized transferee pursuant to Section 8(d) above as a
result of the vesting of Restricted Shares or the Shares underlying Restricted
Share Units are issued to a Participant pursuant to Section 8(d) above, such
Participant or duly-authorized transferee shall also be entitled to receive
(unless otherwise provided in the Award Agreement), with respect to each Share
released or issued, an amount equal to any cash dividends (plus, in the sole
discretion of the Committee, simple interest at a rate as the Committee may
determine) and a number of Shares equal to any stock dividends, which were
declared and paid to the holders of Shares between the Grant Date and the date
such Share is released from the vesting restrictions in the case of Restricted
Shares or issued in the case of Restricted Share Units.

     (f) Section 83(b) Elections. A Participant may make an election under
Section 83(b) of the Code (the "Section 83(b) Election") with respect to
Restricted Shares. If a Participant who has received Restricted Share Units
provides the Committee with written notice of his or her intention to make a
Section 83(b) Election with respect to the Shares subject to such Restricted
Share Units, the Committee may in its discretion convert the Participant's
Restricted Share Units into Restricted Shares, on a one-for-one basis, in full
satisfaction of the Participant's Restricted Share Unit Award. The Participant
may then make a Section 83(b) Election with respect to those Restricted Shares.
Shares with respect to which a Participant makes a Section 83(b) Election shall
not be eligible for deferral pursuant to Section 9 below.

     (g) Deferral Elections. At any time within the thirty-day period (or other
shorter or longer period that the Committee selects in its sole discretion) in
which a Participant who is a member of a select group of management or highly
compensated employees (within the meaning of the Code) receives an Award of
either Restricted Shares or Restricted Share Units, the Committee may permit the
Participant to irrevocably elect, on a form provided by and acceptable to the
Committee, to defer the receipt of all or a percentage of the Shares that would
otherwise be transferred to the Participant upon the vesting of such Award. If
the Participant makes this election, the Shares subject to the election, and any
associated dividends and interest, shall be credited to an account established
pursuant to Section 9 hereof on the date such Shares would otherwise have been
released or issued to the Participant pursuant to Section 8(d) above.

9. DEFERRED SHARE UNITS

     (a) Elections to Defer. The Committee may permit any Eligible Person who is
a Director, Consultant or member of a select group of management or highly
compensated employees (within the meaning of the Code) to irrevocably elect, on
a form provided by and acceptable to the Committee (the "Election Form"), to
forego the receipt of cash or other compensation (including the Shares
deliverable pursuant to any Award other than Restricted Shares for which a
Section 83(b) Election has been made), and in lieu thereof to have the Company
credit to an internal Plan account (the "Account") a number of deferred share
units ("Deferred Share Units") having a Fair Market Value equal to the Shares
and other compensation deferred. These credits will be made at the end of each
calendar month during which compensation is deferred. Each Election Form shall
take effect on the first day of the next calendar year (or on the first day of
the next calendar month in the case of an initial election by a Participant who
first becomes eligible to defer hereunder) after its delivery to the Company,
subject to Section 8(g) regarding deferral of Restricted Shares and Restricted
Share Units and to Section 10(e) regarding deferral of Performance Awards,
unless the Company sends the Participant a written notice explaining why the
Election Form is invalid within five business days after the Company receives
it. Notwithstanding the foregoing sentence: (i) Election Forms shall be
ineffective with respect to any compensation that a Participant earns before the
date on which the Company receives the Election Form, and (ii) the Committee may
unilaterally make awards in the form of Deferred Share Units, regardless of
whether or not the Participant foregoes other compensation.



Commerce Energy Group, Inc.
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     (b) Vesting. Unless an Award Agreement expressly provides otherwise, each
Participant shall be 100% vested at all times in any Shares subject to Deferred
Share Units.

     (c) Issuances of Shares. The Company shall provide a Participant with one
Share for each Deferred Share Unit in five substantially equal annual
installments that are issued before the last day of each of the five calendar
years that end after the date on which the Participant's Continuous Service
terminates, unless --

          (i) the Participant has properly elected a different form of
     distribution, on a form approved by the Committee, that permits the
     Participant to select any combination of a lump sum and annual installments
     that are completed within ten years following termination of the
     Participant's Continuous Service, and

          (ii) the Company received the Participant's distribution election form
     at the time the Participant elects to defer the receipt of cash or other
     compensation pursuant to Section 9(a), provided that such election may be
     changed through any subsequent election that (i) is delivered to the
     Company at least one year before the date on which distributions are
     otherwise scheduled to commence pursuant to the Participant's election, and
     (ii) defers the commencement of distributions by at least five years from
     the originally scheduled commencement date.

     Fractional shares shall not be issued, and instead shall be paid out in
cash.

     (d) Crediting of Dividends. Whenever Shares are issued to a Participant
pursuant to Section 9(c) above, such Participant shall also be entitled to
receive, with respect to each Share issued, a cash amount equal to any cash
dividends (plus simple interest at a rate of five percent per annum, or such
other reasonable rate as the Committee may determine), and a number of Shares
equal to any stock dividends which were declared and paid to the holders of
Shares between the Grant Date and the date such Share is issued.

     (e) Emergency Withdrawals. In the event a Participant suffers an
unforeseeable emergency within the contemplation of this Section and Section
409A of the Code, the Participant may apply to the Company for an immediate
distribution of all or a portion of the Participant's Deferred Share Units. The
unforeseeable emergency must result from a sudden and unexpected illness or
accident of the Participant, the Participant's spouse, or a dependent (within
the meaning of Section 152(a) of the Code) of the Participant, casualty loss of
the Participant's property, or other similar extraordinary and unforeseeable
conditions beyond the control of the Participant. Examples of purposes which are
not considered unforeseeable emergencies include post-secondary school expenses
or the desire to purchase a residence. In no event will a distribution be made
to the extent the unforeseeable emergency could be relieved through
reimbursement or compensation by insurance or otherwise, or by liquidation of
the Participant's nonessential assets to the extent such liquidation would not
itself cause a severe financial hardship. The amount of any distribution
hereunder shall be limited to the amount necessary to relieve the Participant's
unforeseeable emergency plus amounts necessary to pay taxes reasonably
anticipated as a result of the distribution. The Committee shall determine
whether a Participant has a qualifying unforeseeable emergency and the amount
which qualifies for distribution, if any. The Committee may require evidence of
the purpose and amount of the need, and may establish such application or other
procedures as it deems appropriate.

     (f) Unsecured Rights to Deferred Compensation. A Participant's right to
Deferred Share Units shall at all times constitute an unsecured promise of the
Company to pay benefits as they come due. The right of the Participant or the
Participant's duly-authorized transferee to receive benefits hereunder shall be
solely an unsecured claim against the general assets of the Company. Neither the
Participant nor the Participant's duly-authorized transferee shall have any
claim against or rights in any specific assets, shares, or other funds of the
Company.

10. PERFORMANCE AWARDS

     (a) Performance Units. Subject to the limitations set forth in paragraph
(c) hereof, the Committee may in its discretion grant Performance Units to any
Eligible Person and shall evidence such grant in an Award Agreement that is
delivered to the Participant which sets forth the terms and conditions of the
Award.



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     (b) Performance Compensation Awards. Subject to the limitations set forth
in paragraph (c) hereof, the Committee may, at the time of grant of a
Performance Unit, designate such Award as a "Performance Compensation Award"
(payable in cash or Shares) in order that such Award constitutes "qualified
performance-based compensation" under Code Section 162(m), in which event the
Committee shall have the power to grant such Performance Compensation Award upon
terms and conditions that qualify it as "qualified performance-based
compensation" within the meaning of Code Section 162(m). With respect to each
such Performance Compensation Award, the Committee shall establish, in writing
within the time required under Code Section 162(m), a "Performance Period,"
"Performance Measure(s)", and "Performance Formula(e)" (each such term being
hereinafter defined). Once established for a Performance Period, the Performance
Measure(s) and Performance Formula(e) shall not be amended or otherwise modified
to the extent such amendment or modification would cause the compensation
payable pursuant to the Award to fail to constitute qualified performance-based
compensation under Code Section 162(m).

     A Participant shall be eligible to receive payment in respect of a
Performance Compensation Award only to the extent that the Performance
Measure(s) for such Award is achieved and the Performance Formula(e) as applied
against such Performance Measure(s) determines that all or some portion of such
Participant's Award has been earned for the Performance Period. As soon as
practicable after the close of each Performance Period, the Committee shall
review and certify in writing whether, and to what extent, the Performance
Measure(s) for the Performance Period have been achieved and, if so, determine
and certify in writing the amount of the Performance Compensation Award to be
paid to the Participant and, in so doing, may use negative discretion to
decrease, but not increase, the amount of the Award otherwise payable to the
Participant based upon such performance.

     (c) Limitations on Awards. The maximum Performance Unit Award and the
maximum Performance Compensation Award that any one Participant may receive for
any one Performance Period shall not together exceed 1,000,000 Shares and
$1,000,000 in cash. The Committee shall have the discretion to provide in any
Award Agreement that any amounts earned in excess of these limitations will
either be credited as Deferred Share Units, or as deferred cash compensation
under a separate plan of the Company (provided in the latter case that such
deferred compensation either bears a reasonable rate of interest or has a value
based on one or more predetermined actual investments). Any amounts for which
payment to the Participant is deferred pursuant to the preceding sentence shall
be paid to the Participant in a future year or years not earlier than, and only
to the extent that, the Participant is either not receiving compensation in
excess of these limits for a Performance Period, or is not subject to the
restrictions set forth under Section 162(b) of the Code.

     (d) Definitions.

          (i) "Performance Formula" means, for a Performance Period, one or more
     objective formulas or standards established by the Committee for purposes
     of determining whether or the extent to which an Award has been earned
     based on the level of performance attained or to be attained with respect
     to one or more Performance Measure(s). Performance Formulae may vary from
     Performance Period to Performance Period and from Participant to
     Participant and may be established on a stand-alone basis, in tandem or in
     the alternative.

          (ii) "Performance Measure" means one or more of the following selected
     by the Committee to measure Company, Affiliate, and/or business unit
     performance for a Performance Period, whether in absolute or relative terms
     (including, without limitation, terms relative to a peer group or index):
     basic, diluted, or adjusted earnings per share; sales or revenue; earnings
     before interest, taxes, and other adjustments (in total or on a per share
     basis); basic or adjusted net income; returns on equity, assets, capital,
     revenue or similar measure; economic value added; working capital; total
     shareholder return; and product development, product market share,
     research, licensing, litigation, human resources, information services,
     mergers, acquisitions, sales of assets of Affiliates or business units.
     Each such measure shall be, to the extent applicable, determined in
     accordance with generally accepted accounting principles as consistently
     applied by the Company (or such other standard applied by the Committee)
     and, if so determined by the Committee, and in the case of a Performance
     Compensation Award, to the extent permitted under Code Section 162(m),
     adjusted to omit the effects of extraordinary items, gain or loss on the
     disposal of a business segment, unusual or infrequently occurring events
     and transactions and cumulative effects of changes in accounting
     principles. Performance Measures may vary from Performance Period to



Commerce Energy Group, Inc.
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     Performance Period and from Participant to Participant, and may be
     established on a stand-alone basis, in tandem or in the alternative.

          (iii) "Performance Period" means one or more periods of time (of not
     less than one fiscal year of the Company), as the Committee may designate,
     over which the attainment of one or more Performance Measure(s) will be
     measured for the purpose of determining a Participant's rights in respect
     of an Award.

     (e) Deferral Elections. At any time prior to the date that is at least six
months before the close of a Performance Period (or shorter or longer period
that the Committee selects) with respect to an Award of either Performance Units
or Performance Compensation, the Committee may permit a Participant who is a
member of a select group of management or highly compensated employees (within
the meaning of the Code) to irrevocably elect, on a form provided by and
acceptable to the Committee, to defer the receipt of all or a percentage of the
cash or Shares that would otherwise be transferred to the Participant upon the
vesting of such Award. If the Participant makes this election, the cash or
Shares subject to the election, and any associated interest and dividends, shall
be credited to an account established pursuant to Section 9 hereof on the date
such cash or Shares would otherwise have been released or issued to the
Participant pursuant to Section 10(a) or Section 10(b) above.

11. TAXES

     (a) General. As a condition to the issuance or distribution of Shares
pursuant to the Plan, the Participant (or in the case of the Participant's
death, the person who succeeds to the Participant's rights) shall make such
arrangements as the Company may require for the satisfaction of any applicable
federal, state, local or foreign withholding tax obligations that may arise in
connection with the Award and the issuance of Shares. The Company shall not be
required to issue any Shares until such obligations are satisfied. If the
Committee allows the withholding or surrender of Shares to satisfy a
Participant's tax withholding obligations, the Committee shall not allow Shares
to be withheld in an amount that exceeds the minimum statutory withholding rates
for federal and state tax purposes, including payroll taxes.

     (b) Default Rule for Employees. In the absence of any other arrangement, an
Employee shall be deemed to have directed the Company to withhold or collect
from his or her cash compensation an amount sufficient to satisfy such tax
obligations from the next payroll payment otherwise payable after the date of
the exercise of an Award.

     (c) Special Rules. In the case of a Participant other than an Employee (or
in the case of an Employee where the next payroll payment is not sufficient to
satisfy such tax obligations, with respect to any remaining tax obligations), in
the absence of any other arrangement and to the extent permitted under
Applicable Law, the Participant shall be deemed to have elected to have the
Company withhold from the Shares or cash to be issued pursuant to an Award that
number of Shares having a Fair Market Value determined as of the applicable Tax
Date (as defined below) or cash equal to the amount required to be withheld. For
purposes of this Section 11, the Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined under the Applicable Law (the "Tax Date").

     (d) Surrender of Shares. If permitted by the Committee, in its discretion,
a Participant may satisfy the minimum applicable tax withholding and employment
tax obligations associated with an Award by surrendering Shares to the Company
(including Shares that would otherwise be issued pursuant to the Award) that
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld. In the case of Shares previously acquired from
the Company that are surrendered under this Section 11, such Shares must have
been owned by the Participant for more than six months on the date of surrender
(or such longer period of time the Company may in its discretion require).

     (e) Income Taxes and Deferred Compensation. Participants are solely
responsible and liable for the satisfaction of all taxes and penalties that may
arise in connection with Awards (including any taxes arising under Section 409A
of the Code), and the Company shall not have any obligation to indemnify or
otherwise hold any Participant harmless from any or all of such taxes. The
Committee shall have the discretion to organize any deferral program, to require
deferral election forms, and to grant or to unilaterally modify any Award in a
manner that (i) conforms with



Commerce Energy Group, Inc.
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Page 12


the requirements of Section 409A of the Code with respect to compensation that
is deferred and that vests after December 31, 2004, (ii) that voids any
Participant election to the extent it would violate Section 409A of the Code,
and (iii) for any distribution election that would violate Section 409A of the
Code, to make distributions pursuant to the Award at the earliest to occur of a
distribution event that is allowable under Section 409A of the Code or any
distribution event that is both allowable under Section 409A of the Code and is
elected by the Participant, subject to any valid second election to defer,
provided that the Committee permits second elections to defer in accordance with
Section 409A(a)(4)(C). The Committee shall have the sole discretion to interpret
the requirements of the Code, including Section 409A, for purposes of the Plan
and all Awards.

12. NON-TRANSFERABILITY OF AWARDS

     (a) General. Except as set forth in this Section 12, or as otherwise
approved by the Committee, Awards may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent or distribution. The designation of a beneficiary by a
Participant will not constitute a transfer. An Award may be exercised, during
the lifetime of the holder of an Award, only by such holder, the duly-authorized
legal representative of a Participant who is Disabled, or a transferee permitted
by this Section 12.

     (b) Limited Transferability Rights. Notwithstanding anything else in this
Section 12, the Committee may in its discretion provide in an Award Agreement
that an Award other than an ISO may be transferred, on such terms and conditions
as the Committee deems appropriate, either (i) by instrument to the
Participant's "Immediate Family" (as defined below), (ii) by instrument to an
inter vivos or testamentary trust (or other entity) in which the Award is to be
passed to the Participant's designated beneficiaries, or (iii) by gift to
charitable institutions. Any transferee of the Participant's rights shall
succeed and be subject to all of the terms of the applicable Award Agreement and
the Plan. "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, and shall include adoptive relationships.

13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER
TRANSACTIONS

     (a) Changes in Capitalization. The Committee shall equitably adjust the
number of Shares covered by each outstanding Award, and the number of Shares
that have been authorized for issuance under the Plan but as to which no Awards
have yet been granted or that have been returned to the Plan upon cancellation,
forfeiture, or expiration of an Award, as well as the price per Share covered by
each such outstanding Award, to reflect any increase or decrease in the number
of issued Shares resulting from a stock-split, reverse stock-split, stock
dividend, combination, recapitalization or reclassification of the Shares, or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company. In the event of any such transaction or
event, the Committee may provide in substitution for any or all outstanding
Options under the Plan such alternative consideration (including securities of
any surviving entity) as it may in good faith determine to be equitable under
the circumstances and may require in connection therewith the surrender of all
Options so replaced. In any case, such substitution of securities shall not
require the consent of any person who is granted Options pursuant to the Plan.
Except as expressly provided herein, or in an Award Agreement, if the Company
issues for consideration shares of stock of any class or securities convertible
into shares of stock of any class, the issuance shall not affect, and no
adjustment by reason thereof shall be required to be made with respect to the
number or price of Shares subject to any Award.

     (b) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company other than as part of a Change of Control, each Award
will terminate immediately prior to the consummation of such action, subject to
the ability of the Committee to exercise any discretion authorized in the case
of a Change in Control.

     (c) Change in Control. In the event of a Change in Control, the Committee
may in its sole and absolute discretion and authority, without obtaining the
approval or consent of the Company's shareholders or any Participant with
respect to his or her outstanding Awards, take one or more of the following
actions:



Commerce Energy Group, Inc.
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          (i) arrange for or otherwise provide that each outstanding Award shall
     be assumed or a substantially similar award shall be substituted by a
     successor corporation or a parent or subsidiary of such successor
     corporation (the "Successor Corporation");

          (ii) accelerate the vesting of Awards so that Awards shall vest (and,
     to the extent applicable, become exercisable) as to the Shares that
     otherwise would have been unvested and provide that repurchase rights of
     the Company with respect to Shares issued upon exercise of an Award shall
     lapse as to the Shares subject to such repurchase right;

          (iii) arrange or otherwise provide for the payment of cash or other
     consideration to Participants in exchange for the satisfaction and
     cancellation of outstanding Awards;

          (iv) terminate upon the consummation of the transaction, provided that
     the Committee may in its sole discretion provide for vesting of all or some
     outstanding Awards in full as of a date immediately prior to consummation
     of the Change of Control. To the extent that an Award is not exercised
     prior to consummation of a transaction in which the Award is not being
     assumed or substituted, such Award shall terminate upon such consummation;
     or

          (v) make such other modifications, adjustments or amendments to
     outstanding Awards or this Plan as the Committee deems necessary or
     appropriate, subject however to the terms of Section 15(a) below.

     Notwithstanding the above, in the event a Participant holding an Award
assumed or substituted by the Successor Corporation in a Change in Control is
Involuntarily Terminated by the Successor Corporation in connection with, or
within 12 months following consummation of, the Change in Control, then any
assumed or substituted Award held by the terminated Participant at the time of
termination shall accelerate and become fully vested (and exercisable in full in
the case of Options and SARs), and any repurchase right applicable to any Shares
shall lapse in full, unless an Award Agreement provides for a more restrictive
acceleration or vesting schedule or more restrictive limitations on the lapse of
repurchase rights or otherwise places additional restrictions, limitations and
conditions on an Award. The acceleration of vesting and lapse of repurchase
rights provided for in the previous sentence shall occur immediately prior to
the effective date of the Participant's termination, unless an Award Agreement
provides otherwise.

     (d) Certain Distributions. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Committee may, in its discretion,
appropriately adjust the price per Share covered by each outstanding Award to
reflect the effect of such distribution.

14. TIME OF GRANTING AWARDS.

     The date of grant ("Grant Date") of an Award shall be the date on which the
Committee makes the determination granting such Award or such other date as is
determined by the Committee, provided that in the case of an ISO, the Grant Date
shall be the later of the date on which the Committee makes the determination
granting such ISO or the date of commencement of the Participant's employment
relationship with the Company.

15. MODIFICATION OF AWARDS AND SUBSTITUTION OF OPTIONS.

     (a) Modification, Extension, and Renewal of Awards. Within the limitations
of the Plan, the Committee may modify an Award to accelerate the rate at which
an Option or SAR may be exercised (including without limitation permitting an
Option or SAR to be exercised in full without regard to the installment or
vesting provisions of the applicable Award Agreement or whether the Option or
SAR is at the time exercisable, to the extent it has not previously been
exercised), to accelerate the vesting of any Award, to extend or renew
outstanding Awards or to accept the cancellation of outstanding Awards to the
extent not previously exercised. However, the Committee may not cancel an
outstanding option that is underwater for the purpose of reissuing the option to
the participant at a lower exercise price or granting a replacement award of a
different type. Notwithstanding the foregoing provision,



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 14


no modification of an outstanding Award shall materially and adversely affect
such Participant's rights thereunder, unless either the Participant provides
written consent or there is an express Plan provision permitting the Committee
to act unilaterally to make the modification.

     (b) Substitution of Options. Notwithstanding any inconsistent provisions or
limits under the Plan, in the event the Company or an Affiliate acquires
(whether by purchase, merger or otherwise) all or substantially all of
outstanding capital stock or assets of another corporation or in the event of
any reorganization or other transaction qualifying under Section 424 of the
Code, the Committee may, in accordance with the provisions of that Section,
substitute Options for options under the plan of the acquired company provided
(i) the excess of the aggregate fair market value of the shares subject to an
option immediately after the substitution over the aggregate option price of
such shares is not more than the similar excess immediately before such
substitution and (ii) the new option does not give persons additional benefits,
including any extension of the exercise period.

16. TERM OF PLAN.

     The Plan shall continue in effect for a term of ten (10) years from its
effective date as determined under Section 20 below, unless the Plan is sooner
terminated under Section 17 below.

17. AMENDMENT AND TERMINATION OF THE PLAN.

     (a) Authority to Amend or Terminate. Subject to Applicable Laws, the Board
may from time to time amend, alter, suspend, discontinue, or terminate the Plan.

     (b) Effect of Amendment or Termination. No amendment, suspension, or
termination of the Plan shall materially and adversely affect Awards already
granted unless either it relates to an adjustment pursuant to Section 13 above,
or it is otherwise mutually agreed between the Participant and the Committee,
which agreement must be in writing and signed by the Participant and the
Company. Notwithstanding the foregoing, the Committee may amend the Plan to
eliminate provisions which are no longer necessary as a result of changes in tax
or securities laws or regulations, or in the interpretation thereof.

18. CONDITIONS UPON ISSUANCE OF SHARES.

     Notwithstanding any other provision of the Plan or any agreement entered
into by the Company pursuant to the Plan, the Company shall not be obligated,
and shall have no liability for failure, to issue or deliver any Shares under
the Plan unless such issuance or delivery would comply with Applicable Law, with
such compliance determined by the Company in consultation with its legal
counsel.

19. RESERVATION OF SHARES.

     The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.

20. EFFECTIVE DATE.

     This Plan shall become effective on the date on which it has received
approval by a vote of a majority of the votes cast at a duly held meeting of the
Company's shareholders (or by such other shareholder vote that the Administrator
determines to be sufficient for the issuance of Shares or stock options
according to the Company's governing documents and applicable state law).

21. CONTROLLING LAW.

     All disputes relating to or arising from the Plan shall be governed by the
internal substantive laws (and not the laws of conflicts of laws) of the State
of Delaware, to the extent not preempted by United States federal law. If any



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 15


provision of this Plan is held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions shall continue to be fully
effective.

22. LAWS AND REGULATIONS.

     (a) U.S. Securities Laws. This Plan, the grant of Awards, and the exercise
of Options and SARs under this Plan, and the obligation of the Company to sell
or deliver any of its securities (including, without limitation, Options,
Restricted Shares, Restricted Share Units, Deferred Share Units, and Shares)
under this Plan shall be subject to all Applicable Law. In the event that the
Shares are not registered under the Securities Act of 1933, as amended (the
"Act"), or any applicable state securities laws prior to the delivery of such
Shares, the Company may require, as a condition to the issuance thereof, that
the persons to whom Shares are to be issued represent and warrant in writing to
the Company that such Shares are being acquired by him or her for investment for
his or her own account and not with a view to, for resale in connection with, or
with an intent of participating directly or indirectly in, any distribution of
such Shares within the meaning of the Act, and a legend to that effect may be
placed on the certificates representing the Shares.

     (b) Other Jurisdictions. To facilitate the making of any grant of an Award
under this Plan, the Committee may provide for such special terms for Awards to
Participants who are foreign nationals or who are employed by the Company or any
Affiliate outside of the United States of America as the Committee may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom. The Company may adopt rules and procedures relating to the operation and
administration of this Plan to accommodate the specific requirements of local
laws and procedures of particular countries. Without limiting the foregoing, the
Company is specifically authorized to adopt rules and procedures regarding the
conversion of local currency, taxes, withholding procedures and handling of
stock certificates which vary with the customs and requirements of particular
countries. The Company may adopt sub-plans and establish escrow accounts and
trusts as may be appropriate or applicable to particular locations and
countries.

23. NO SHAREHOLDER RIGHTS.

     Neither a Participant nor any transferee of a Participant shall have any
rights as a shareholder of the Company with respect to any Shares underlying any
Award until the date of issuance of a share certificate to a Participant or a
transferee of a Participant for such Shares in accordance with the Company's
governing instruments and Applicable Law. Prior to the issuance of Shares
pursuant to an Award, a Participant shall not have the right to vote or to
receive dividends or any other rights as a shareholder with respect to the
Shares underlying the Award, notwithstanding its exercise in the case of Options
and SARs. No adjustment will be made for a dividend or other right that is
determined based on a record date prior to the date the stock certificate is
issued, except as otherwise specifically provided for in this Plan.

24. NO EMPLOYMENT RIGHTS.

     The Plan shall not confer upon any Participant any right to continue an
employment, service or consulting relationship with the Company, nor shall it
affect in any way a Participant's right or the Company's right to terminate the
Participant's employment, service, or consulting relationship at any time, with
or without Cause.

25. TERMINATION, RESCISSION AND RECAPTURE.

     (a) Each Award under the Plan is intended to align the Participant's
long-term interest with those of the Company. If the Participant engages in
certain activities discussed below, either during employment or after employment
with the Company terminates for any reason, the Participant is acting contrary
to the long-term interests of the Company. Accordingly, except as otherwise
expressly provided in the Award Agreement, the Company may terminate any
outstanding, unexercised, unexpired, unpaid, or deferred Awards ("Termination"),
rescind any exercise, payment or delivery pursuant to the Award ("Rescission"),
or recapture any Common Stock (whether restricted or unrestricted) or proceeds
from the Participant's sale of Shares issued pursuant to the Award



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 16


("Recapture"), if the Participant does not comply with the conditions of
subsections (b) and (c) hereof (collectively, the "Conditions").

     (b) A Participant shall not, without the Company's prior written
authorization, disclose to anyone outside the Company, or use in other than the
Company's business, any proprietary or confidential information or material, as
those or other similar terms are used in any applicable patent, confidentiality,
inventions, secrecy, or other agreement between the Participant and the Company
with regard to any such proprietary or confidential information or material.

     (c) Pursuant to any agreement between the Participant and the Company with
regard to intellectual property (including but not limited to patents,
trademarks, copyrights, trade secrets, inventions, developments, improvements,
proprietary information, confidential business and personnel information), a
Participant shall promptly disclose and assign to the Company or its designee
all right, title, and interest in such intellectual property, and shall take all
reasonable steps necessary to enable the Company to secure all right, title and
interest in such intellectual property in the United States and in any foreign
country.

     (d) Upon exercise, payment, or delivery of cash or Common Stock pursuant to
an Award, the Participant shall certify on a form acceptable to the Company that
he or she is in compliance with the terms and conditions of the Plan and, if a
severance of Continuous Service has occurred for any reason, shall state the
name and address of the Participant's then-current employer or any entity for
which the Participant performs business services and the Participant's title,
and shall identify any organization or business in which the Participant owns a
greater-than-five-percent equity interest.

     (e) If the Company determines, in its sole and absolute discretion, that
(i) a Participant has violated any of the Conditions or (ii) during his or her
Continuous Service, or within one year after its termination for any reason, a
Participant (a) has rendered services to or otherwise directly or indirectly
engaged in or assisted, any organization or business that, in the judgment of
the Company in its sole and absolute discretion, is or is working to become
competitive with the Company; (b) has solicited any non-administrative employee
of the Company to terminate employment with the Company; or (c) has engaged in
activities which are materially prejudicial to or in conflict with the interests
of the Company, including any breaches of fiduciary duty or the duty of loyalty,
then the Company may, in its sole and absolute discretion, impose a Termination,
Rescission, and/or Recapture with respect to any or all of the Participant's
relevant Awards, Shares, and the proceeds thereof.

     (f) Within ten days after receiving notice from the Company of any such
activity, the Participant shall deliver to the Company the Shares acquired
pursuant to the Award, or, if Participant has sold the Shares, the gain
realized, or payment received as a result of the rescinded exercise, payment, or
delivery; provided, that if the Participant returns Shares that the Participant
purchased pursuant to the exercise of an Option (or the gains realized from the
sale of such Common Stock), the Company shall promptly refund the exercise
price, without earnings, that the Participant paid for the Shares. Any payment
by the Participant to the Company pursuant to this Section 21 shall be made
either in cash or by returning to the Company the number of Shares that the
Participant received in connection with the rescinded exercise, payment, or
delivery. It shall not be a basis for Termination, Rescission or Recapture if
after termination of a Participant's Continuous Service, the Participant
purchases, as an investment or otherwise, stock or other securities of such an
organization or business, so long as (i) such stock or other securities are
listed upon a recognized securities exchange or traded over-the-counter, and
(ii) such investment does not represent more than a five percent (5%) equity
interest in the organization or business.

     (g) Notwithstanding the foregoing provisions of this Section, the Company
has sole and absolute discretion not to require Termination, Rescission and/or
Recapture, and its determination not to require Termination, Rescission and/or
Recapture with respect to any particular act by a particular Participant or
Award shall not in any way reduce or eliminate the Company's authority to
require Termination, Rescission and/or Recapture with respect to any other act
or Participant or Award. Nothing in this Section shall be construed to impose
obligations on the Participant to refrain from engaging in lawful competition
with the Company after the termination of employment that does not violate
subsections (b) or (c) of this Section, other than any obligations that are part
of any separate agreement between the Company and the Participant or that arise
under applicable law.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 17


     (h) All administrative and discretionary authority given to the Company
under this Section shall be exercised by the most senior human resources
executive of the Company or such other person or committee (including without
limitation the Committee) as the Committee may designate from time to time.

     (i) Notwithstanding any provision of this Section, if any provision of this
Section is determined to be unenforceable or invalid under any applicable law,
such provision will be applied to the maximum extent permitted by applicable
law, and shall automatically be deemed amended in a manner consistent with its
objectives to the extent necessary to conform to any limitations required under
applicable law. Furthermore, if any provision of this Section is illegal under
any applicable law, such provision shall be null and void to the extent
necessary to comply with applicable law.

     Notwithstanding the foregoing, but subject to any contrary terms set forth
in any Award Agreement, this Section shall not be applicable: (i) to any
Participant who is not, on the Award Date, an Employee of the Company or its
Affiliates; and (ii) to any Participant from and after his or her termination of
Continuous Service after a Change in Control.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 18


                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                   ----------

                             APPENDIX A: DEFINITIONS

                                   ----------

     As used in the Plan, the following definitions shall apply:

     "AFFILIATE" means, with respect to any Person (as defined below), any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person or the power to elect directors, whether through the ownership of
voting securities, by contract or otherwise; and the terms "affiliated,"
"controlling" and "controlled" have meanings correlative to the foregoing.

     "APPLICABLE LAW" means the legal requirements relating to the
administration of options and share-based plans under applicable U.S. federal
and state laws, the Code, any applicable stock exchange or automated quotation
system rules or regulations, and the applicable laws of any other country or
jurisdiction where Awards are granted, as such laws, rules, regulations and
requirements shall be in place from time to time.

     "AWARD" means any award made pursuant to the Plan, including awards made in
the form of an Option, an SAR, a Restricted Share, a Restricted Share Unit, an
Unrestricted Share, a Deferred Share Unit, and a Performance Award, or any
combination thereof, whether alternative or cumulative, authorized by and
granted under this Plan.

     "AWARD AGREEMENT" means any written document setting forth the terms of an
Award that has been authorized by the Committee. The Committee shall determine
the form or forms of documents to be used, and may change them from time to time
for any reason.

     "BOARD" means the Board of Directors of the Company.

     "CAUSE" for termination of a Participant's Continuous Service will exist if
the Participant is terminated from employment or other service with the Company
or an Affiliate for any of the following reasons: (i) the Participant's willful
failure to substantially perform his or her duties and responsibilities to the
Company or deliberate violation of a material Company policy; (ii) the
Participant's commission of any material act or acts of fraud, embezzlement,
dishonesty, or other willful misconduct; (iii) the Participant's material
unauthorized use or disclosure of any proprietary information or trade secrets
of the Company or any other party to whom the Participant owes an obligation of
nondisclosure as a result of his or her relationship with the Company; or (iv)
Participant's willful and material breach of any of his or her obligations under
any written agreement or covenant with the Company.

     The Committee shall in its discretion determine whether or not a
Participant is being terminated for Cause. The Committee's determination shall,
unless arbitrary and capricious, be final and binding on the Participant, the
Company, and all other affected persons. The foregoing definition does not in
any way limit the Company's ability to terminate a Participant's employment or
consulting relationship at any time, and the term "Company" will be interpreted
herein to include any Affiliate or successor thereto, if appropriate.

     "CHANGE IN CONTROL" means any of the following:

          (i) Acquisition of Controlling Interest. Any Person becomes the
     Beneficial Owner, directly or indirectly, of securities of the Company
     representing 50% or more of the combined voting power of the Company's then
     outstanding securities. In applying the preceding sentence, (i) securities
     acquired directly from the Company or its Affiliates by or for the Person
     shall not be taken into account, and (ii) an agreement to vote securities
     shall be



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 19


     disregarded unless its ultimate purpose is to cause what would otherwise be
     a Change in Control, as reasonably determined by the Board.

          (ii) Change in Board Control. During a consecutive 2-year period
     commencing after the date of adoption of this Plan, individuals who
     constituted the Board at the beginning of the period (or their approved
     replacements, as defined in the next sentence) cease for any reason to
     constitute a majority of the Board. A new Director shall be considered an
     "approved replacement" Director if his or her election (or nomination for
     election) was approved by a vote of at least a majority of the Directors
     then still in office who either were Directors at the beginning of the
     period or were themselves approved replacement Directors, but in either
     case excluding any Director whose initial assumption of office occurred as
     a result of an actual or threatened solicitation of proxies or consents by
     or on behalf of any Person other than the Board.

          (iii) Merger. The Company consummates a merger, or consolidation of
     the Company with any other corporation unless: (a) the voting securities of
     the Company outstanding immediately before the merger or consolidation
     would continue to represent (either by remaining outstanding or by being
     converted into voting securities of the surviving entity) at least 50% of
     the combined voting power of the voting securities of the Company or such
     surviving entity outstanding immediately after such merger or
     consolidation; and (b) no Person becomes the Beneficial Owner, directly or
     indirectly, of securities of the Company representing 50% or more of the
     combined voting power of the Company's then outstanding securities.

          (iv) Sale of Assets. The stockholders of the Company approve an
     agreement for the sale or disposition by the Company of all, or
     substantially all, of the Company's assets.

          (v) Liquidation or Dissolution. The stockholders of the Company
     approve a plan or proposal for liquidation or dissolution of the Company.

     Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.

     "CODE" means the U.S. Internal Revenue Code of 1986, as amended.

     "COMMITTEE" means one or more committees or subcommittees of the Board
appointed by the Board to administer the Plan in accordance with Section 4
above. With respect to any decision involving an Award intended to satisfy the
requirements of Section 162(m) of the Code, the Committee shall consist of two
or more Directors of the Company who are "outside directors" within the meaning
of Section 162(m) of the Code. With respect to any decision relating to a
Reporting Person, the Committee shall consist of two or more Directors who are
disinterested within the meaning of Rule 16b-3.

     "COMPANY" means Commerce Energy Group, Inc., a Delaware corporation;
provided, however, that in the event the Company reincorporates to another
jurisdiction, all references to the term "Company" shall refer to the Company in
such new jurisdiction.

     "CONSULTANT" means any person, including an advisor, who is engaged by the
Company or any Affiliate to render services and is compensated for such
services.

     "CONTINUOUS SERVICE" means the absence of any interruption or termination
of service as an Employee, Director, or Consultant. Continuous Service shall not
be considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Committee, provided that such
leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; (iv)
changes in status from Director to advisory director or emeritus status; or (v)
in the case of transfers between locations of the Company or



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 20


between the Company, its Affiliates or their respective successors. Changes in
status between service as an Employee, Director, and a Consultant will not
constitute an interruption of Continuous Service.

     "DEFERRED SHARE UNITS" mean Awards pursuant to Section 9 of the Plan.

     "DIRECTOR" means a member of the Board, or a member of the board of
directors of an Affiliate.

     "DISABLED" means a condition under which a Participant --

          (a) is unable to engage in any substantial gainful activity by reason
     of any medically determinable physical or mental impairment which can be
     expected to result in death or can be expected to last for a continuous
     period of not less than 12 months, or

          (b) is, by reason of any medically determinable physical or mental
     impairment which can be expected to result in death or can be expected to
     last for a continuous period of not less than 12 months, received income
     replacement benefits for a period of not less than 3 months under an
     accident or health plan covering employees of the Company.

     "ELIGIBLE PERSON" means any Consultant, Director or Employee and includes
non-Employees to whom an offer of employment has been extended.

     "EMPLOYEE" means any person whom the Company or any Affiliate classifies as
an employee (including an officer) for employment tax purposes, whether or not
that classification is correct. The payment by the Company of a director's fee
to a Director shall not be sufficient to constitute "employment" of such
Director by the Company.

     "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

     "FAIR MARKET VALUE" means, as of any date (the "Determination Date") means:
(i) the closing price of a Share on the New York Stock Exchange or the American
Stock Exchange (collectively, the "Exchange"), on the Determination Date, or, if
shares were not traded on the Determination Date, then on the nearest preceding
trading day during which a sale occurred; or (ii) if such stock is not traded on
the Exchange but is quoted on NASDAQ or a successor quotation system, (A) the
last sales price (if the stock is then listed as a National Market Issue under
The Nasdaq National Market System) or (B) the mean between the closing
representative bid and asked prices (in all other cases) for the stock on the
Determination Date as reported by NASDAQ or such successor quotation system; or
(iii) if such stock is not traded on the Exchange or quoted on NASDAQ but is
otherwise traded in the over-the-counter, the mean between the representative
bid and asked prices on the Determination Date; or (iv) if subsections (i)-(iii)
do not apply, the fair market value established in good faith by the Board.

     "GRANT DATE" has the meaning set forth in Section 14 of the Plan.

     "INCENTIVE SHARE OPTION OR ISO" hereinafter means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable Award Agreement.

     "INVOLUNTARY TERMINATION" means termination of a Participant's Continuous
Service under the following circumstances occurring on or after a Change in
Control: (i) termination without Cause by the Company or an Affiliate or
successor thereto, as appropriate; or (ii) voluntary termination by the
Participant within 60 days following (A) a material reduction in the
Participant's job responsibilities, provided that neither a mere change in title
alone nor reassignment to a substantially similar position shall constitute a
material reduction in job responsibilities; (B) an involuntary relocation of the
Participant's work site to a facility or location more than 50 miles from the
Participant's principal work site at the time of the Change in Control; or (C) a
material reduction in Participant's total compensation other than as part of an
reduction by the same percentage amount in the compensation of all other
similarly-situated Employees, Directors or Consultants.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan
Page 21


     "NON-ISO" means an Option not intended to qualify as an ISO, as designated
in the applicable Award Agreement.

     "OPTION" means any stock option granted pursuant to Section 6 of the Plan.

     "PARTICIPANT" means any holder of one or more Awards, or the Shares
issuable or issued upon exercise of such Awards, under the Plan.

     "PERFORMANCE AWARDS" mean Performance Units and Performance Compensation
Awards granted pursuant to Section 10.

     "PERFORMANCE COMPENSATION AWARDS" mean Awards granted pursuant to Section
10(b) of the Plan.

     "PERFORMANCE UNIT" means Awards granted pursuant to Section 10(a) of the
Plan which may be paid in cash, in Shares, or such combination of cash and
Shares as the Committee in its sole discretion shall determine.

     "PERSON" means any natural person, association, trust, business trust,
cooperative, corporation, general partnership, joint venture, joint-stock
company, limited partnership, limited liability company, real estate investment
trust, regulatory body, governmental agency or instrumentality, unincorporated
organization or organizational entity.

     "PLAN" means this Commerce Energy Group, Inc. 2006 Stock Incentive Plan.

     "REPORTING PERSON" means an officer, Director, or greater than ten percent
shareholder of the Company within the meaning of Rule 16a-2 under the Exchange
Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange
Act.

     "RESTRICTED SHARES" mean Shares subject to restrictions imposed pursuant to
Section 8 of the Plan.

     "RESTRICTED SHARE UNITS" mean Awards pursuant to Section 8 of the Plan.

     "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act, as
amended from time to time, or any successor provision.

     "SAR" OR "SHARE APPRECIATION RIGHT" means Awards granted pursuant to
Section 7 of the Plan.

     "SHARE" means a share of common stock of the Company, par value $0.001, as
adjusted in accordance with Section 13 of the Plan.

     "TEN PERCENT HOLDER" means a person who owns stock representing more than
ten percent (10%) of the combined voting power of all classes of stock of the
Company or any Affiliate.

     "UNRESTRICTED SHARES" mean Shares awarded pursuant to Section 8 of the
Plan.


                                                                       EXHIBIT B

MEMORANDUM

                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                  COMMON STOCK
                               ($0.001 PAR VALUE)

          This Memorandum relates to shares of common stock, $0.001 par value
per share (the "Common Stock"), of Commerce Energy Group, Inc., a Delaware
corporation (the "Company"), issuable in satisfaction of awards made under
Commerce Energy Group, Inc.'s 2006 Stock Incentive Plan (the "Plan") to eligible
employees, consultants and directors of the Company. Stock options, share
appreciation rights, restricted shares, restricted share units, unrestricted
shares, deferred share units, performance shares and performance units may be
awarded under the Plan.

                                   ----------

                   The date of this Memorandum is May 8, 2006.

                                   ----------

             THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
          SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
           OF 1933. THIS MEMORANDUM AND THE DOCUMENTS INCORPORATED BY
            REFERENCE IN THIS MEMORANDUM CONSTITUTE A SECTION 10(A)
                      PROSPECTUS UNDER THE SECURITIES ACT.

                           COMMERCE ENERGY GROUP, INC.
                           600 Anton Blvd., Suite 200
                          Costa Mesa, California 92626



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 2


          This Memorandum does not constitute an offer to sell or a solicitation
of an offer to buy any securities other than the registered securities to which
it relates or an offer to sell or a solicitation of an offer to buy any
securities in any jurisdiction to any person to whom it is unlawful to make such
an offer or solicitation.

          Neither delivery of this Memorandum nor any sale made thereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company or in any information included therein, in
any supplement thereto or in any document incorporated by reference since the
date hereof or thereof.

                                     GENERAL

          This Memorandum relates to shares of common stock, $0.001 par value
per share (the "Common Stock"), of Commerce Energy Group, Inc., a Delaware
corporation (the "Company"), issuable in satisfaction of awards under the
Company's 2006 Stock Incentive Plan (the "Plan") to eligible employees,
consultants and directors of the Company. Stock options, share appreciation
rights, restricted shares, restricted share units, unrestricted shares, deferred
share units, performance shares and performance units may be awarded under the
Plan, though only employees may receive stock options classified as incentive
stock options ("ISOs") which are intended to satisfy the requirements of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). Options
awarded under the Plan may be either ISOs or non-qualified stock options
("non-ISOs") which are not intended to qualify as ISOs. Share appreciation
rights may be granted in tandem with options or as free-standing awards.
Options, share appreciation rights, restricted shares, restricted share units,
unrestricted shares, deferred shares, and performance awards vest in accordance
with the terms established by the committee administering the Plan, which may
include conditions relating to completion of a specified period of service or
achievement of performance standards.

          Any person deemed to be an "affiliate" of the Company may re-offer or
resell shares of Common Stock acquired pursuant to the Plan without registration
under the Securities Act of 1933, as amended (the "Act"), upon compliance with
Rule 144 under the Act. Participants who are not "affiliates" of the Company may
resell the shares of Common Stock acquired pursuant to the Plan without the need
to comply with Rule 144. For purposes of Rule 144, an "affiliate" of an issuer
is a person that directly or indirectly, through the use of one or more
intermediaries, controls, or is controlled by, or is under common control with,
such issuer. Acquisitions of shares, exercises of options or other transactions
involving shares of Common Stock pursuant to the Plan by our directors,
executive officers or a 10% stockholder could be subject to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 (the "Exchange Act").

          The Plan became effective as of January 26, 2006, the date that it was
approved by the Company's Stockholders. As currently operating, the Plan is not
qualified under Section 401(a) of the Code and is not subject to the provisions
of the Employee Retirement Income Security Act of 1974. The complete text of the
Plan appears below under the caption "2006 Stock Incentive Plan."

                            2006 STOCK INCENTIVE PLAN

1. ESTABLISHMENT, PURPOSE, AND TYPES OF AWARDS

     Commerce Energy Group, Inc. (the "Company") hereby establishes this
equity-based incentive compensation plan to be known as the "Commerce Energy
Group, Inc. 2006 Stock Incentive Plan" (hereinafter referred to as the "Plan"),
in order to provide incentives and awards to select employees, directors,
consultants, and advisors of the Company and its Affiliates.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 3


     The Plan permits the granting of the following types of awards ("Awards"),
according to the Sections of the Plan listed here:

     Section 6    Options
     Section 7    Share Appreciation Rights
     Section 8    Restricted Shares, Restricted Share Units, and Unrestricted
                  Shares
     Section 9    Deferred Share Units
     Section 10   Performance Awards

     The Plan is not intended to affect and shall not affect any stock options,
equity-based compensation, or other benefits that the Company or its Affiliates
may have provided, or may separately provide in the future pursuant to any
agreement, plan, or program that is independent of this Plan.

2. DEFINED TERMS

     Terms in the Plan that begin with an initial capital letter have the
defined meaning set forth in APPENDIX A, unless defined elsewhere in this Plan
or the context of their use clearly indicates a different meaning.

3. SHARES SUBJECT TO THE PLAN

     Subject to the provisions of Section 13 of the Plan, the maximum number of
Shares that the Company may issue for all Awards is 1,453,334 Shares, provided
that the Company shall not make additional awards under the Commonwealth Energy
Corporation 1999 Equity Incentive Plan, as amended and assumed by Commerce
Energy Group, Inc. For all Awards, the Shares issued pursuant to the Plan may be
authorized but unissued Shares, or Shares that the Company has reacquired or
otherwise holds in treasury.

     Shares that are subject to an Award that for any reason expires, is
forfeited, is cancelled, or becomes unexercisable, and Shares that are for any
other reason not paid or delivered under the Plan shall again, except to the
extent prohibited by Applicable Law, be available for subsequent Awards under
the Plan. In addition, the Committee may make future Awards with respect to
Shares that the Company retains from otherwise delivering pursuant to an Award
either (i) as payment of the exercise price of an Award, or (ii) in order to
satisfy the withholding or employment taxes due upon the grant, exercise,
vesting or distribution of an Award. Notwithstanding the foregoing, but subject
to adjustments pursuant to Section 13 below, the number of Shares that are
available for ISO Awards shall be determined, to the extent required under
applicable tax laws, by reducing the number of Shares designated in the
preceding paragraph by the number of Shares granted pursuant to Awards (whether
or not Shares are issued pursuant to such Awards), provided that any Shares that
are either issued or purchased under the Plan and forfeited back to the Plan, or
surrendered in payment of the Exercise Price for an Award shall be available for
issuance pursuant to future ISO Awards.

4. ADMINISTRATION

     (a) General. The Committee shall administer the Plan in accordance with its
terms, provided that the Board may act in lieu of the Committee on any matter.
The Committee shall hold meetings at such times and places as it may determine
and shall make such rules and regulations for the conduct of its business as it
deems advisable. In the absence of a duly appointed Committee or if the Board
otherwise chooses to act in lieu of the Committee, the Board shall function as
the Committee for all purposes of the Plan.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 4


     (b) Committee Composition. The Board shall appoint the members of the
Committee. If and to the extent permitted by Applicable Law, the Committee may
authorize one or more Reporting Persons (or other officers) to make Awards to
Eligible Persons who are not Reporting Persons (or other officers whom the
Committee has specifically authorized to make Awards). The Board may at any time
appoint additional members to the Committee, remove and replace members of the
Committee with or without Cause, and fill vacancies on the Committee however
caused.

     (c) Powers of the Committee. Subject to the provisions of the Plan, the
Committee shall have the authority, in its sole discretion:

          (i) to determine Eligible Persons to whom Awards shall be granted from
     time to time and the number of Shares, units, or SARs to be covered by each
     Award;

          (ii) to determine, from time to time, the Fair Market Value of Shares;

          (iii) to determine, and to set forth in Award Agreements, the terms
     and conditions of all Awards, including any applicable exercise or purchase
     price, the installments and conditions under which an Award shall become
     vested (which may be based on performance), terminated, expired, cancelled,
     or replaced, and the circumstances for vesting acceleration or waiver of
     forfeiture restrictions, and other restrictions and limitations;

          (iv) to approve the forms of Award Agreements and all other documents,
     notices and certificates in connection therewith which need not be
     identical either as to type of Award or among Participants;

          (v) to construe and interpret the terms of the Plan and any Award
     Agreement, to determine the meaning of their terms, and to prescribe,
     amend, and rescind rules and procedures relating to the Plan and its
     administration; and

          (vi) in order to fulfill the purposes of the Plan and without amending
     the Plan, modify, cancel, or waive the Company's rights with respect to any
     Awards, to adjust or to modify Award Agreements for changes in Applicable
     Law, and to recognize differences in foreign law, tax policies, or customs;
     and

          (vii) to make all other interpretations and to take all other actions
     that the Committee may consider necessary or advisable to administer the
     Plan or to effectuate its purposes.

     Subject to Applicable Law and the restrictions set forth in the Plan, the
Committee may delegate administrative functions to individuals who are Reporting
Persons, officers, or Employees of the Company or its Affiliates.

     (d) Deference to Committee Determinations. The Committee shall have the
discretion to interpret or construe ambiguous, unclear, or implied (but omitted)
terms in any fashion it deems to be appropriate in its sole discretion, and to
make any findings of fact needed in the administration of the Plan or Award
Agreements. The Committee's prior exercise of its discretionary authority shall
not obligate it to exercise its authority in a like fashion thereafter. The
Committee's interpretation and construction of any provision of the Plan, or of
any Award or Award Agreement, shall be final, binding, and conclusive. The
validity of any such interpretation, construction, decision or finding of fact
shall not be given de novo review if challenged in court, by arbitration, or in
any other forum, and shall be upheld unless clearly made in bad faith or
materially affected by fraud.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 5


     (e) No Liability; Indemnification. Neither the Board nor any Committee
member, nor any Person acting at the direction of the Board or the Committee,
shall be liable for any act, omission, interpretation, construction or
determination made in good faith with respect to the Plan, any Award or any
Award Agreement. The Company and its Affiliates shall pay or reimburse any
member of the Committee, as well as any Director, Employee, or Consultant who
takes action in connection with the Plan, for all expenses incurred with respect
to the Plan, and to the full extent allowable under Applicable Law shall
indemnify each and every one of them for any claims, liabilities, and costs
(including reasonable attorney's fees) arising out of their good faith
performance of duties under the Plan. The Company and its Affiliates may obtain
liability insurance for this purpose.

5. ELIGIBILITY

     (a) General Rule. The Committee may grant ISOs only to Employees (including
officers who are Employees) of the Company or an Affiliate that is a "parent
corporation" or "subsidiary corporation" within the meaning of Section 424 of
the Code, and may grant all other Awards to any Eligible Person. A Participant
who has been granted an Award may be granted an additional Award or Awards if
the Committee shall so determine, if such person is otherwise an Eligible Person
and if otherwise in accordance with the terms of the Plan.

     (b) Grant of Awards. Subject to the express provisions of the Plan, the
Committee shall determine from the class of Eligible Persons those individuals
to whom Awards under the Plan may be granted, the number of Shares subject to
each Award, the price (if any) to be paid for the Shares or the Award and, in
the case of Performance Awards, in addition to the matters addressed in Section
10 below, the specific objectives, goals and performance criteria that further
define the Performance Award. Each Award shall be evidenced by an Award
Agreement signed by the Company and, if required by the Committee, by the
Participant. The Award Agreement shall set forth the material terms and
conditions of the Award established by the Committee, and each Award shall be
subject to the terms and conditions set forth in Sections 23, 24, and 25 unless
otherwise specifically provided in an Award Agreement.

     (c) Limits on Awards. During any calendar year, no Participant may receive
Options and SARs that relate to more than 1,000,000 Shares. The Committee will
adjust this limitation pursuant to Section 13 below.

     (d) Replacement Awards. Subject to Applicable Laws (including any
associated Shareholder approval requirements), the Committee may, in its sole
discretion and upon such terms as it deems appropriate, require as a condition
of the grant of an Award to a Participant that the Participant surrender for
cancellation some or all of the Awards that have previously been granted to the
Participant under this Plan or otherwise. An Award that is conditioned upon such
surrender may or may not be the same type of Award, may cover the same (or a
lesser or greater) number of Shares as such surrendered Award, may have other
terms that are determined without regard to the terms or conditions of such
surrendered Award, and may contain any other terms that the Committee deems
appropriate. In the case of Options, these other terms may not involve an
Exercise Price that is lower than the Exercise Price of the surrendered Option
unless the Company's shareholders approve the grant itself or the program under
which the grant is made pursuant to the Plan.

6. OPTION AWARDS

     (a) Types; Documentation. The Committee may in its discretion grant ISOs to
any Employee and Non-ISOs to any Eligible Person, and shall evidence any such
grants in an Award Agreement that is



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 6


delivered to the Participant. Each Option shall be designated in the Award
Agreement as an ISO or a Non-ISO, and the same Award Agreement may grant both
types of Options. At the sole discretion of the Committee, any Option may be
exercisable, in whole or in part, immediately upon the grant thereof, or only
after the occurrence of a specified event, or only in installments, which
installments may vary. Options granted under the Plan may contain such terms and
provisions not inconsistent with the Plan that the Committee shall deem
advisable in its sole and absolute discretion.

     (b) ISO $100,000 Limitation. To the extent that the aggregate Fair Market
Value of Shares with respect to which Options designated as ISOs first become
exercisable by a Participant in any calendar year (under this Plan and any other
plan of the Company or any Affiliate) exceeds $100,000, such excess Options
shall be treated as Non-ISOs. For purposes of determining whether the $100,000
limit is exceeded, the Fair Market Value of the Shares subject to an ISO shall
be determined as of the Grant Date. In reducing the number of Options treated as
ISOs to meet the $100,000 limit, the most recently granted Options shall be
reduced first. In the event that Section 422 of the Code is amended to alter the
limitation set forth therein, the limitation of this Section 6(b) shall be
automatically adjusted accordingly.

     (c) Term of Options. Each Award Agreement shall specify a term at the end
of which the Option automatically expires, subject to earlier termination
provisions contained in Section 6(h) hereof; provided, that, the term of any
Option may not exceed ten years from the Grant Date. In the case of an ISO
granted to an Employee who is a Ten Percent Holder on the Grant Date, the term
of the ISO shall not exceed five years from the Grant Date.

     (d) Exercise Price. The exercise price of an Option shall be determined by
the Committee in its sole discretion and shall be set forth in the Award
Agreement, provided that (i) if an ISO is granted to an Employee who on the
Grant Date is a Ten Percent Holder, the per Share exercise price shall not be
less than 110% of the Fair Market Value per Share on the Grant Date, and (ii)
for all other Options, such per Share exercise price shall not be less than 100%
of the Fair Market Value per Share on the Grant Date. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of the federal securities laws applicable to proxy statement
disclosures.

     (e) Exercise of Option. The times, circumstances and conditions under which
an Option shall be exercisable shall be determined by the Committee in its sole
discretion and set forth in the Award Agreement. The Committee shall have the
discretion to determine whether and to what extent the vesting of Options shall
be tolled during any unpaid leave of absence; provided, however, that in the
absence of such determination, vesting of Options shall be tolled during any
such leave approved by the Company.

     (f) Minimum Exercise Requirements. An Option may not be exercised for a
fraction of a Share. The Committee may require in an Award Agreement that an
Option be exercised as to a minimum number of Shares, provided that such
requirement shall not prevent a Participant from purchasing the full number of
Shares as to which the Option is then exercisable.

     (g) Methods of Exercise. Prior to its expiration pursuant to the terms of
the applicable Award Agreement, and subject to the times, circumstances and
conditions for exercise contained in the applicable Award Agreement, each Option
may be exercised, in whole or in part (provided that the Company shall not be
required to issue fractional shares), by delivery of written notice of exercise
to the secretary of the Company accompanied by the full exercise price of the
Shares being purchased. In the case of an ISO, the Committee shall determine the
acceptable methods of payment on the Grant Date and it shall be included in the
applicable Award Agreement. The methods of payment that the Committee may in its
discretion accept or commit to accept in an Award Agreement include:



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
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          (i) cash or check payable to the Company (in U.S. dollars);

          (ii) other Shares that (A) are owned by the Participant who is
     purchasing Shares pursuant to an Option, (B) have a Fair Market Value on
     the date of surrender equal to the aggregate exercise price of the Shares
     as to which the Option is being exercised, (C) were not acquired by such
     Participant pursuant to the exercise of an Option, unless such Shares have
     been owned by such Participant for at least six months or such other period
     as the Committee may determine, (D) are all, at the time of such surrender,
     free and clear of any and all claims, pledges, liens and encumbrances, or
     any restrictions which would in any manner restrict the transfer of such
     shares to or by the Company (other than such restrictions as may have
     existed prior to an issuance of such Shares by the Company to such
     Participant), and (E) are duly endorsed for transfer to the Company;

          (iii) a cashless exercise program that the Committee may approve, from
     time to time in its discretion, pursuant to which a Participant may
     concurrently provide irrevocable instructions (A) to such Participant's
     broker or dealer to effect the immediate sale of the purchased Shares and
     remit to the Company, out of the sale proceeds available on the settlement
     date, sufficient funds to cover the exercise price of the Option plus all
     applicable taxes required to be withheld by the Company by reason of such
     exercise, and (B) to the Company to deliver the certificates for the
     purchased Shares directly to such broker or dealer in order to complete the
     sale; or

          (iv) any combination of the foregoing methods of payment.

     The Company shall not be required to deliver Shares pursuant to the
exercise of an Option until payment of the full exercise price therefore is
received by the Company.

     (h) Termination of Continuous Service. The Committee may establish and set
forth in the applicable Award Agreement the terms and conditions on which an
Option shall remain exercisable, if at all, following termination of a
Participant's Continuous Service. The Committee may waive or modify these
provisions at any time. To the extent that a Participant is not entitled to
exercise an Option at the date of his or her termination of Continuous Service,
or if the Participant (or other person entitled to exercise the Option) does not
exercise the Option to the extent so entitled within the time specified in the
Award Agreement or below (as applicable), the Option shall terminate and the
Shares underlying the unexercised portion of the Option shall revert to the Plan
and become available for future Awards. In no event may any Option be exercised
after the expiration of the Option term as set forth in the Award Agreement.

     The following provisions shall apply to the extent an Award Agreement does
not specify the terms and conditions upon which an Option shall terminate when
there is a termination of a Participant's Continuous Service:

          (i) Termination other than Upon Disability or Death or for Cause. In
     the event of termination of a Participant's Continuous Service (other than
     as a result of Participant's death, disability, retirement or termination
     for Cause), the Participant shall have the right to exercise an Option at
     any time within 90 days following such termination to the extent the
     Participant was entitled to exercise such Option at the date of such
     termination.

          (ii) Disability. In the event of termination of a Participant's
     Continuous Service as a result of his or her being Disabled, the
     Participant shall have the right to exercise an Option at any time within
     one



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 8


     year following such termination to the extent the Participant was entitled
     to exercise such Option at the date of such termination.

          (iii) Retirement. In the event of termination of a Participant's
     Continuous Service as a result of Participant's retirement, the Participant
     shall have the right to exercise the Option at any time within six months
     following such termination to the extent the Participant was entitled to
     exercise such Option at the date of such termination.

          (iv) Death. In the event of the death of a Participant during the
     period of Continuous Service since the Grant Date of an Option, or within
     thirty days following termination of the Participant's Continuous Service,
     the Option may be exercised, at any time within one year following the date
     of the Participant's death, by the Participant's estate or by a person who
     acquired the right to exercise the Option by bequest or inheritance, but
     only to the extent the right to exercise the Option had vested at the date
     of death or, if earlier, the date the Participant's Continuous Service
     terminated.

          (v) Cause. If the Committee determines that a Participant's Continuous
     Service terminated due to Cause, the Participant shall immediately forfeit
     the right to exercise any Option, and it shall be considered immediately
     null and void.

     (i) Reverse Vesting. The Committee in its sole discretion may allow a
Participant to exercise unvested Options, in which case the Shares then issued
shall be Restricted Shares having analogous vesting restrictions to the unvested
Options.

     (j) Buyout Provisions. The Committee may at any time offer to buy out an
Option, in exchange for a payment in cash or Shares, based on such terms and
conditions as the Committee shall establish and communicate to the Participant
at the time that such offer is made.

7. SHARE APPRECIATE RIGHTS (SARS)

     (a) Grants. The Committee may in its discretion grant Share Appreciation
Rights to any Eligible Person, in any of the following forms:

          (i) SARs related to Options. The Committee may grant SARs either
     concurrently with the grant of an Option or with respect to an outstanding
     Option, in which case the SAR shall extend to all or a portion of the
     Shares covered by the related Option. An SAR shall entitle the Participant
     who holds the related Option, upon exercise of the SAR and surrender of the
     related Option, or portion thereof, to the extent the SAR and related
     Option each were previously unexercised, to receive payment of an amount
     determined pursuant to Section 7(e) below. Any SAR granted in connection
     with an ISO will contain such terms as may be required to comply with the
     provisions of Section 422 of the Code and the regulations promulgated
     thereunder.

          (ii) SARs Independent of Options. The Committee may grant SARs which
     are independent of any Option subject to such conditions as the Committee
     may in its discretion determine, which conditions will be set forth in the
     applicable Award Agreement.

          (iii) Limited SARs. The Committee may grant SARs exercisable only upon
     or in respect of a Change in Control or any other specified event, and such
     limited SARs may relate to or operate in tandem or combination with or
     substitution for Options or other SARs, or on a stand-alone basis, and may
     be payable in cash or Shares based on the spread between the exercise price
     of the SAR, and (A)



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 9


     a price based upon or equal to the Fair Market Value of the Shares during a
     specified period, at a specified time within a specified period before,
     after or including the date of such event, or (B) a price related to
     consideration payable to Company's shareholders generally in connection
     with the event.

     (b) Exercise Price. The per Share exercise price of an SAR shall be
determined in the sole discretion of the Committee, shall be set forth in the
applicable Award Agreement, and shall be no less than 100% of the Fair Market
Value of one Share. The exercise price of an SAR related to an Option shall be
the same as the exercise price of the related Option. Neither the Company nor
the Committee shall, without shareholder approval, allow for a repricing within
the meaning of federal securities laws applicable to proxy statement
disclosures.

     (c) Exercise of SARs. Unless the Award Agreement otherwise provides, an SAR
related to an Option will be exercisable at such time or times, and to the
extent, that the related Option will be exercisable; provided that the Award
Agreement shall not, without the approval of the shareholders of the Company,
provide for a vesting period for the exercise of the SAR that is more favorable
to the Participant than the exercise period for the related Option. An SAR may
not have a term exceeding ten years from its Grant Date. An SAR granted
independently of any other Award will be exercisable pursuant to the terms of
the Award Agreement, but shall not, without the approval of the shareholders of
the Company, provide for a vesting period for the exercise of the SAR that is
more favorable to the Participant than the exercise period for the related
Option. Whether an SAR is related to an Option or is granted independently, the
SAR may only be exercised when the Fair Market Value of the Shares underlying
the SAR exceeds the exercise price of the SAR.

     (d) Effect on Available Shares. All SARs that may be settled in shares of
the Company's stock shall be counted in full against the number of shares
available for award under the Plan, regardless of the number of shares actually
issued upon settlement of the SARs.

     (e) Payment. Upon exercise of an SAR related to an Option and the attendant
surrender of an exercisable portion of any related Award, the Participant will
be entitled to receive payment of an amount determined by multiplying --

          (i) the excess of the Fair Market Value of a Share on the date of
     exercise of the SAR over the exercise price per Share of the SAR, by

          (ii) the number of Shares with respect to which the SAR has been
     exercised.

     Notwithstanding the foregoing, an SAR granted independently of an Option
(i) may limit the amount payable to the Participant to a percentage, specified
in the Award Agreement but not exceeding one-hundred percent (100%), of the
amount determined pursuant to the preceding sentence, and (ii) shall be subject
to any payment or other restrictions that the Committee may at any time impose
in its discretion, including restrictions intended to conform the SARs with
Section 409A of the Code.

     (f) Form and Terms of Payment. Subject to Applicable Law, the Committee
may, in its sole discretion, settle the amount determined under Section 7(e)
above solely in cash, solely in Shares (valued at their Fair Market Value on the
date of exercise of the SAR), or partly in cash and partly in Shares, with cash
paid in lieu of fractional shares. Unless otherwise provided in an Award
Agreement, all SARs shall be settled in Shares as soon as practicable after
exercise.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 10


     (g) Termination of Employment or Consulting Relationship. The Committee
shall establish and set forth in the applicable Award Agreement the terms and
conditions on which an SAR shall remain exercisable, if at all, following
termination of a Participant's Continuous Service. The provisions of Section
6(h) above shall apply to the extent an Award Agreement does not specify the
terms and conditions upon which an SAR shall terminate when there is a
termination of a Participant's Continuous Service.

     (h) Buy out. The Committee has the same discretion to buy out SARs as it
has to take such actions pursuant to Section 6(j) above with respect to Options.

8. RESTRICTED SHARES, RESTRICTED SHARE UNITS, AND UNRESTRICTED SHARES

     (a) Grants. The Committee may in its sole discretion grant restricted
shares ("Restricted Shares") to any Eligible Person and shall evidence such
grant in an Award Agreement that is delivered to the Participant and that sets
forth the number of Restricted Shares, the purchase price for such Restricted
Shares (if any), and the terms upon which the Restricted Shares may become
vested. In addition, the Company may in its discretion grant the right to
receive Shares after certain vesting requirements are met ("Restricted Share
Units") to any Eligible Person and shall evidence such grant in an Award
Agreement that is delivered to the Participant which sets forth the number of
Shares (or formula, that may be based on future performance or conditions, for
determining the number of Shares) that the Participant shall be entitled to
receive upon vesting and the terms upon which the Shares subject to a Restricted
Share Unit may become vested. The Committee may condition any Award of
Restricted Shares or Restricted Share Units to a Participant on receiving from
the Participant such further assurances and documents as the Committee may
require to enforce the restrictions. In addition, the Committee may grant Awards
hereunder in the form of unrestricted shares ("Unrestricted Shares"), which
shall vest in full upon the date of grant or such other date as the Committee
may determine or which the Committee may issue pursuant to any program under
which one or more Eligible Persons (selected by the Committee in its sole
discretion) elect to receive Unrestricted Shares in lieu of cash bonuses that
would otherwise be paid.

     (b) Vesting and Forfeiture. The Committee shall set forth in an Award
Agreement granting Restricted Shares or Restricted Share Units, the terms and
conditions under which the Participant's interest in the Restricted Shares or
the Shares subject to Restricted Share Units will become vested and
non-forfeitable. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, upon termination of a Participant's Continuous
Service for any other reason, the Participant shall forfeit his or her
Restricted Shares and Restricted Share Units; provided that if a Participant
purchases the Restricted Shares and forfeits them for any reason, the Company
shall return the purchase price to the Participant only if and to the extent set
forth in an Award Agreement.

     (c) Issuance of Restricted Shares Prior to Vesting. The Company shall issue
stock certificates that evidence Restricted Shares pending the lapse of
applicable restrictions, and that bear a legend making appropriate reference to
such restrictions. Except as set forth in the applicable Award Agreement or the
Committee otherwise determines, the Company or a third party that the Company
designates shall hold such Restricted Shares and any dividends that accrue with
respect to Restricted Shares pursuant to Section 8(e) below.

     (d) Issuance of Shares upon Vesting. As soon as practicable after vesting
of a Participant's Restricted Shares (or Shares underlying Restricted Share
Units) and the Participant's satisfaction of applicable tax withholding
requirements, the Company shall release to the Participant, free from the
vesting restrictions, one Share for each vested Restricted Share (or issue one
Share free of the vesting restriction for each



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 11


vested Restricted Share Unit), unless an Award Agreement provides otherwise. No
fractional shares shall be distributed, and cash shall be paid in lieu thereof.

     (e) Dividends Payable on Vesting. Whenever Shares are released to a
Participant or duly-authorized transferee pursuant to Section 8(d) above as a
result of the vesting of Restricted Shares or the Shares underlying Restricted
Share Units are issued to a Participant pursuant to Section 8(d) above, such
Participant or duly-authorized transferee shall also be entitled to receive
(unless otherwise provided in the Award Agreement), with respect to each Share
released or issued, an amount equal to any cash dividends (plus, in the sole
discretion of the Committee, simple interest at a rate as the Committee may
determine) and a number of Shares equal to any stock dividends, which were
declared and paid to the holders of Shares between the Grant Date and the date
such Share is released from the vesting restrictions in the case of Restricted
Shares or issued in the case of Restricted Share Units.

     (f) Section 83(b) Elections. A Participant may make an election under
Section 83(b) of the Code (the "Section 83(b) Election") with respect to
Restricted Shares. If a Participant who has received Restricted Share Units
provides the Committee with written notice of his or her intention to make a
Section 83(b) Election with respect to the Shares subject to such Restricted
Share Units, the Committee may in its discretion convert the Participant's
Restricted Share Units into Restricted Shares, on a one-for-one basis, in full
satisfaction of the Participant's Restricted Share Unit Award. The Participant
may then make a Section 83(b) Election with respect to those Restricted Shares.
Shares with respect to which a Participant makes a Section 83(b) Election shall
not be eligible for deferral pursuant to Section 9 below.

     (g) Deferral Elections. At any time within the thirty-day period (or other
shorter or longer period that the Committee selects in its sole discretion) in
which a Participant who is a member of a select group of management or highly
compensated employees (within the meaning of the Code) receives an Award of
either Restricted Shares or Restricted Share Units, the Committee may permit the
Participant to irrevocably elect, on a form provided by and acceptable to the
Committee, to defer the receipt of all or a percentage of the Shares that would
otherwise be transferred to the Participant upon the vesting of such Award. If
the Participant makes this election, the Shares subject to the election, and any
associated dividends and interest, shall be credited to an account established
pursuant to Section 9 hereof on the date such Shares would otherwise have been
released or issued to the Participant pursuant to Section 8(d) above.

9. DEFERRED SHARE UNITS

     (a) Elections to Defer. The Committee may permit any Eligible Person who is
a Director, Consultant or member of a select group of management or highly
compensated employees (within the meaning of the Code) to irrevocably elect, on
a form provided by and acceptable to the Committee (the "Election Form"), to
forego the receipt of cash or other compensation (including the Shares
deliverable pursuant to any Award other than Restricted Shares for which a
Section 83(b) Election has been made), and in lieu thereof to have the Company
credit to an internal Plan account (the "Account") a number of deferred share
units ("Deferred Share Units") having a Fair Market Value equal to the Shares
and other compensation deferred. These credits will be made at the end of each
calendar month during which compensation is deferred. Each Election Form shall
take effect on the first day of the next calendar year (or on the first day of
the next calendar month in the case of an initial election by a Participant who
first becomes eligible to defer hereunder) after its delivery to the Company,
subject to Section 8(g) regarding deferral of Restricted Shares and Restricted
Share Units and to Section 10(e) regarding deferral of Performance Awards,
unless the Company sends the Participant a written notice explaining why the
Election Form is invalid within five business days after the Company receives
it. Notwithstanding the foregoing sentence: (i) Election



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 12


Forms shall be ineffective with respect to any compensation that a Participant
earns before the date on which the Company receives the Election Form, and (ii)
the Committee may unilaterally make awards in the form of Deferred Share Units,
regardless of whether or not the Participant foregoes other compensation.

     (b) Vesting. Unless an Award Agreement expressly provides otherwise, each
Participant shall be 100% vested at all times in any Shares subject to Deferred
Share Units.

     (c) Issuances of Shares. The Company shall provide a Participant with one
Share for each Deferred Share Unit in five substantially equal annual
installments that are issued before the last day of each of the five calendar
years that end after the date on which the Participant's Continuous Service
terminates, unless --

          (i) the Participant has properly elected a different form of
     distribution, on a form approved by the Committee, that permits the
     Participant to select any combination of a lump sum and annual installments
     that are completed within ten years following termination of the
     Participant's Continuous Service, and

          (ii) the Company received the Participant's distribution election form
     at the time the Participant elects to defer the receipt of cash or other
     compensation pursuant to Section 9(a), provided that such election may be
     changed through any subsequent election that (i) is delivered to the
     Company at least one year before the date on which distributions are
     otherwise scheduled to commence pursuant to the Participant's election, and
     (ii) defers the commencement of distributions by at least five years from
     the originally scheduled commencement date.

     Fractional shares shall not be issued, and instead shall be paid out in
cash.

     (d) Crediting of Dividends. Whenever Shares are issued to a Participant
pursuant to Section 9(c) above, such Participant shall also be entitled to
receive, with respect to each Share issued, a cash amount equal to any cash
dividends (plus simple interest at a rate of five percent per annum, or such
other reasonable rate as the Committee may determine), and a number of Shares
equal to any stock dividends which were declared and paid to the holders of
Shares between the Grant Date and the date such Share is issued.

     (e) Emergency Withdrawals. In the event a Participant suffers an
unforeseeable emergency within the contemplation of this Section and Section
409A of the Code, the Participant may apply to the Company for an immediate
distribution of all or a portion of the Participant's Deferred Share Units. The
unforeseeable emergency must result from a sudden and unexpected illness or
accident of the Participant, the Participant's spouse, or a dependent (within
the meaning of Section 152(a) of the Code) of the Participant, casualty loss of
the Participant's property, or other similar extraordinary and unforeseeable
conditions beyond the control of the Participant. Examples of purposes which are
not considered unforeseeable emergencies include post-secondary school expenses
or the desire to purchase a residence. In no event will a distribution be made
to the extent the unforeseeable emergency could be relieved through
reimbursement or compensation by insurance or otherwise, or by liquidation of
the Participant's nonessential assets to the extent such liquidation would not
itself cause a severe financial hardship. The amount of any distribution
hereunder shall be limited to the amount necessary to relieve the Participant's
unforeseeable emergency plus amounts necessary to pay taxes reasonably
anticipated as a result of the distribution. The Committee shall determine
whether a Participant has a qualifying unforeseeable emergency and the amount
which qualifies for distribution, if any. The Committee may require evidence



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 13


of the purpose and amount of the need, and may establish such application or
other procedures as it deems appropriate.

     (f) Unsecured Rights to Deferred Compensation. A Participant's right to
Deferred Share Units shall at all times constitute an unsecured promise of the
Company to pay benefits as they come due. The right of the Participant or the
Participant's duly-authorized transferee to receive benefits hereunder shall be
solely an unsecured claim against the general assets of the Company. Neither the
Participant nor the Participant's duly-authorized transferee shall have any
claim against or rights in any specific assets, shares, or other funds of the
Company.

10. PERFORMANCE AWARDS

     (a) Performance Units. Subject to the limitations set forth in paragraph
(c) hereof, the Committee may in its discretion grant Performance Units to any
Eligible Person and shall evidence such grant in an Award Agreement that is
delivered to the Participant which sets forth the terms and conditions of the
Award.

     (b) Performance Compensation Awards. Subject to the limitations set forth
in paragraph (c) hereof, the Committee may, at the time of grant of a
Performance Unit, designate such Award as a "Performance Compensation Award"
(payable in cash or Shares) in order that such Award constitutes "qualified
performance-based compensation" under Code Section 162(m), in which event the
Committee shall have the power to grant such Performance Compensation Award upon
terms and conditions that qualify it as "qualified performance-based
compensation" within the meaning of Code Section 162(m). With respect to each
such Performance Compensation Award, the Committee shall establish, in writing
within the time required under Code Section 162(m), a "Performance Period,"
"Performance Measure(s)", and "Performance Formula(e)" (each such term being
hereinafter defined). Once established for a Performance Period, the Performance
Measure(s) and Performance Formula(e) shall not be amended or otherwise modified
to the extent such amendment or modification would cause the compensation
payable pursuant to the Award to fail to constitute qualified performance-based
compensation under Code Section 162(m).

     A Participant shall be eligible to receive payment in respect of a
Performance Compensation Award only to the extent that the Performance
Measure(s) for such Award is achieved and the Performance Formula(e) as applied
against such Performance Measure(s) determines that all or some portion of such
Participant's Award has been earned for the Performance Period. As soon as
practicable after the close of each Performance Period, the Committee shall
review and certify in writing whether, and to what extent, the Performance
Measure(s) for the Performance Period have been achieved and, if so, determine
and certify in writing the amount of the Performance Compensation Award to be
paid to the Participant and, in so doing, may use negative discretion to
decrease, but not increase, the amount of the Award otherwise payable to the
Participant based upon such performance.

     (c) Limitations on Awards. The maximum Performance Unit Award and the
maximum Performance Compensation Award that any one Participant may receive for
any one Performance Period shall not together exceed 1,000,000 Shares and
$1,000,000 in cash. The Committee shall have the discretion to provide in any
Award Agreement that any amounts earned in excess of these limitations will
either be credited as Deferred Share Units, or as deferred cash compensation
under a separate plan of the Company (provided in the latter case that such
deferred compensation either bears a reasonable rate of interest or has a value
based on one or more predetermined actual investments). Any amounts for which
payment to the Participant is deferred pursuant to the preceding sentence shall
be paid to the Participant in a future



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 14


year or years not earlier than, and only to the extent that, the Participant is
either not receiving compensation in excess of these limits for a Performance
Period, or is not subject to the restrictions set forth under Section 162(b) of
the Code.

(d) Definitions.

          (i) "Performance Formula" means, for a Performance Period, one or more
     objective formulas or standards established by the Committee for purposes
     of determining whether or the extent to which an Award has been earned
     based on the level of performance attained or to be attained with respect
     to one or more Performance Measure(s). Performance Formulae may vary from
     Performance Period to Performance Period and from Participant to
     Participant and may be established on a stand-alone basis, in tandem or in
     the alternative.

          (ii) "Performance Measure" means one or more of the following selected
     by the Committee to measure Company, Affiliate, and/or business unit
     performance for a Performance Period, whether in absolute or relative terms
     (including, without limitation, terms relative to a peer group or index):
     basic, diluted, or adjusted earnings per share; sales or revenue; earnings
     before interest, taxes, and other adjustments (in total or on a per share
     basis); basic or adjusted net income; returns on equity, assets, capital,
     revenue or similar measure; economic value added; working capital; total
     shareholder return; and product development, product market share,
     research, licensing, litigation, human resources, information services,
     mergers, acquisitions, sales of assets of Affiliates or business units.
     Each such measure shall be, to the extent applicable, determined in
     accordance with generally accepted accounting principles as consistently
     applied by the Company (or such other standard applied by the Committee)
     and, if so determined by the Committee, and in the case of a Performance
     Compensation Award, to the extent permitted under Code Section 162(m),
     adjusted to omit the effects of extraordinary items, gain or loss on the
     disposal of a business segment, unusual or infrequently occurring events
     and transactions and cumulative effects of changes in accounting
     principles. Performance Measures may vary from Performance Period to
     Performance Period and from Participant to Participant, and may be
     established on a stand-alone basis, in tandem or in the alternative.

          (iii) "Performance Period" means one or more periods of time (of not
     less than one fiscal year of the Company), as the Committee may designate,
     over which the attainment of one or more Performance Measure(s) will be
     measured for the purpose of determining a Participant's rights in respect
     of an Award.

     (e) Deferral Elections. At any time prior to the date that is at least six
months before the close of a Performance Period (or shorter or longer period
that the Committee selects) with respect to an Award of either Performance Units
or Performance Compensation, the Committee may permit a Participant who is a
member of a select group of management or highly compensated employees (within
the meaning of the Code) to irrevocably elect, on a form provided by and
acceptable to the Committee, to defer the receipt of all or a percentage of the
cash or Shares that would otherwise be transferred to the Participant upon the
vesting of such Award. If the Participant makes this election, the cash or
Shares subject to the election, and any associated interest and dividends, shall
be credited to an account established pursuant to Section 9 hereof on the date
such cash or Shares would otherwise have been released or issued to the
Participant pursuant to Section 10(a) or Section 10(b) above.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 15


11. TAXES

     (a) General. As a condition to the issuance or distribution of Shares
pursuant to the Plan, the Participant (or in the case of the Participant's
death, the person who succeeds to the Participant's rights) shall make such
arrangements as the Company may require for the satisfaction of any applicable
federal, state, local or foreign withholding tax obligations that may arise in
connection with the Award and the issuance of Shares. The Company shall not be
required to issue any Shares until such obligations are satisfied. If the
Committee allows the withholding or surrender of Shares to satisfy a
Participant's tax withholding obligations, the Committee shall not allow Shares
to be withheld in an amount that exceeds the minimum statutory withholding rates
for federal and state tax purposes, including payroll taxes.

     (b) Default Rule for Employees. In the absence of any other arrangement, an
Employee shall be deemed to have directed the Company to withhold or collect
from his or her cash compensation an amount sufficient to satisfy such tax
obligations from the next payroll payment otherwise payable after the date of
the exercise of an Award.

     (c) Special Rules. In the case of a Participant other than an Employee (or
in the case of an Employee where the next payroll payment is not sufficient to
satisfy such tax obligations, with respect to any remaining tax obligations), in
the absence of any other arrangement and to the extent permitted under
Applicable Law, the Participant shall be deemed to have elected to have the
Company withhold from the Shares or cash to be issued pursuant to an Award that
number of Shares having a Fair Market Value determined as of the applicable Tax
Date (as defined below) or cash equal to the amount required to be withheld. For
purposes of this Section 11, the Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined under the Applicable Law (the "Tax Date").

     (d) Surrender of Shares. If permitted by the Committee, in its discretion,
a Participant may satisfy the minimum applicable tax withholding and employment
tax obligations associated with an Award by surrendering Shares to the Company
(including Shares that would otherwise be issued pursuant to the Award) that
have a Fair Market Value determined as of the applicable Tax Date equal to the
amount required to be withheld. In the case of Shares previously acquired from
the Company that are surrendered under this Section 11, such Shares must have
been owned by the Participant for more than six months on the date of surrender
(or such longer period of time the Company may in its discretion require).

     (e) Income Taxes and Deferred Compensation. Participants are solely
responsible and liable for the satisfaction of all taxes and penalties that may
arise in connection with Awards (including any taxes arising under Section 409A
of the Code), and the Company shall not have any obligation to indemnify or
otherwise hold any Participant harmless from any or all of such taxes. The
Committee shall have the discretion to organize any deferral program, to require
deferral election forms, and to grant or to unilaterally modify any Award in a
manner that (i) conforms with the requirements of Section 409A of the Code with
respect to compensation that is deferred and that vests after December 31, 2004,
(ii) that voids any Participant election to the extent it would violate Section
409A of the Code, and (iii) for any distribution election that would violate
Section 409A of the Code, to make distributions pursuant to the Award at the
earliest to occur of a distribution event that is allowable under Section 409A
of the Code or any distribution event that is both allowable under Section 409A
of the Code and is elected by the Participant, subject to any valid second
election to defer, provided that the Committee permits second elections to defer
in accordance with Section 409A(a)(4)(C). The Committee shall have the sole
discretion to interpret the requirements of the Code, including Section 409A,
for purposes of the Plan and all Awards.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 16


12. NON-TRANSFERABILITY OF AWARDS

     (a) General. Except as set forth in this Section 12, or as otherwise
approved by the Committee, Awards may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent or distribution. The designation of a beneficiary by a
Participant will not constitute a transfer. An Award may be exercised, during
the lifetime of the holder of an Award, only by such holder, the duly-authorized
legal representative of a Participant who is Disabled, or a transferee permitted
by this Section 12.

     (b) Limited Transferability Rights. Notwithstanding anything else in this
Section 12, the Committee may in its discretion provide in an Award Agreement
that an Award other than an ISO may be transferred, on such terms and conditions
as the Committee deems appropriate, either (i) by instrument to the
Participant's "Immediate Family" (as defined below), (ii) by instrument to an
inter vivos or testamentary trust (or other entity) in which the Award is to be
passed to the Participant's designated beneficiaries, or (iii) by gift to
charitable institutions. Any transferee of the Participant's rights shall
succeed and be subject to all of the terms of the applicable Award Agreement and
the Plan. "Immediate Family" means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, and shall include adoptive relationships.

13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER OR CERTAIN OTHER
TRANSACTIONS

     (a) Changes in Capitalization. The Committee shall equitably adjust the
number of Shares covered by each outstanding Award, and the number of Shares
that have been authorized for issuance under the Plan but as to which no Awards
have yet been granted or that have been returned to the Plan upon cancellation,
forfeiture, or expiration of an Award, as well as the price per Share covered by
each such outstanding Award, to reflect any increase or decrease in the number
of issued Shares resulting from a stock-split, reverse stock-split, stock
dividend, combination, recapitalization or reclassification of the Shares, or
any other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Company. In the event of any such transaction or
event, the Committee may provide in substitution for any or all outstanding
Options under the Plan such alternative consideration (including securities of
any surviving entity) as it may in good faith determine to be equitable under
the circumstances and may require in connection therewith the surrender of all
Options so replaced. In any case, such substitution of securities shall not
require the consent of any person who is granted Options pursuant to the Plan.
Except as expressly provided herein, or in an Award Agreement, if the Company
issues for consideration shares of stock of any class or securities convertible
into shares of stock of any class, the issuance shall not affect, and no
adjustment by reason thereof shall be required to be made with respect to the
number or price of Shares subject to any Award.

     (b) Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Company other than as part of a Change of Control, each Award
will terminate immediately prior to the consummation of such action, subject to
the ability of the Committee to exercise any discretion authorized in the case
of a Change in Control.

     (c) Change in Control. In the event of a Change in Control, the Committee
may in its sole and absolute discretion and authority, without obtaining the
approval or consent of the Company's shareholders or any Participant with
respect to his or her outstanding Awards, take one or more of the following
actions:



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 17


          (i) arrange for or otherwise provide that each outstanding Award shall
     be assumed or a substantially similar award shall be substituted by a
     successor corporation or a parent or subsidiary of such successor
     corporation (the "Successor Corporation");

          (ii) accelerate the vesting of Awards so that Awards shall vest (and,
     to the extent applicable, become exercisable) as to the Shares that
     otherwise would have been unvested and provide that repurchase rights of
     the Company with respect to Shares issued upon exercise of an Award shall
     lapse as to the Shares subject to such repurchase right;

          (iii) arrange or otherwise provide for the payment of cash or other
     consideration to Participants in exchange for the satisfaction and
     cancellation of outstanding Awards;

          (iv) terminate upon the consummation of the transaction, provided that
     the Committee may in its sole discretion provide for vesting of all or some
     outstanding Awards in full as of a date immediately prior to consummation
     of the Change of Control. To the extent that an Award is not exercised
     prior to consummation of a transaction in which the Award is not being
     assumed or substituted, such Award shall terminate upon such consummation;
     or

          (v) make such other modifications, adjustments or amendments to
     outstanding Awards or this Plan as the Committee deems necessary or
     appropriate, subject however to the terms of Section 15(a) below.

     Notwithstanding the above, in the event a Participant holding an Award
assumed or substituted by the Successor Corporation in a Change in Control is
Involuntarily Terminated by the Successor Corporation in connection with, or
within 12 months following consummation of, the Change in Control, then any
assumed or substituted Award held by the terminated Participant at the time of
termination shall accelerate and become fully vested (and exercisable in full in
the case of Options and SARs), and any repurchase right applicable to any Shares
shall lapse in full, unless an Award Agreement provides for a more restrictive
acceleration or vesting schedule or more restrictive limitations on the lapse of
repurchase rights or otherwise places additional restrictions, limitations and
conditions on an Award. The acceleration of vesting and lapse of repurchase
rights provided for in the previous sentence shall occur immediately prior to
the effective date of the Participant's termination, unless an Award Agreement
provides otherwise.

     (d) Certain Distributions. In the event of any distribution to the
Company's shareholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Committee may, in its discretion,
appropriately adjust the price per Share covered by each outstanding Award to
reflect the effect of such distribution.

14. TIME OF GRANTING AWARDS.

     The date of grant ("Grant Date") of an Award shall be the date on which the
Committee makes the determination granting such Award or such other date as is
determined by the Committee, provided that in the case of an ISO, the Grant Date
shall be the later of the date on which the Committee makes the determination
granting such ISO or the date of commencement of the Participant's employment
relationship with the Company.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 18


15. MODIFICATION OF AWARDS AND SUBSTITUTION OF OPTIONS.

     (a) Modification, Extension, and Renewal of Awards. Within the limitations
of the Plan, the Committee may modify an Award to accelerate the rate at which
an Option or SAR may be exercised (including without limitation permitting an
Option or SAR to be exercised in full without regard to the installment or
vesting provisions of the applicable Award Agreement or whether the Option or
SAR is at the time exercisable, to the extent it has not previously been
exercised), to accelerate the vesting of any Award, to extend or renew
outstanding Awards or to accept the cancellation of outstanding Awards to the
extent not previously exercised. However, the Committee may not cancel an
outstanding option that is underwater for the purpose of reissuing the option to
the participant at a lower exercise price or granting a replacement award of a
different type. Notwithstanding the foregoing provision, no modification of an
outstanding Award shall materially and adversely affect such Participant's
rights thereunder, unless either the Participant provides written consent or
there is an express Plan provision permitting the Committee to act unilaterally
to make the modification.

     (b) Substitution of Options. Notwithstanding any inconsistent provisions or
limits under the Plan, in the event the Company or an Affiliate acquires
(whether by purchase, merger or otherwise) all or substantially all of
outstanding capital stock or assets of another corporation or in the event of
any reorganization or other transaction qualifying under Section 424 of the
Code, the Committee may, in accordance with the provisions of that Section,
substitute Options for options under the plan of the acquired company provided
(i) the excess of the aggregate fair market value of the shares subject to an
option immediately after the substitution over the aggregate option price of
such shares is not more than the similar excess immediately before such
substitution and (ii) the new option does not give persons additional benefits,
including any extension of the exercise period.

16. TERM OF PLAN.

     The Plan shall continue in effect for a term of ten (10) years from its
effective date as determined under Section 20 below, unless the Plan is sooner
terminated under Section 17 below.

17. AMENDMENT AND TERMINATION OF THE PLAN.

     (a) Authority to Amend or Terminate. Subject to Applicable Laws, the Board
may from time to time amend, alter, suspend, discontinue, or terminate the Plan.

     (b) Effect of Amendment or Termination. No amendment, suspension, or
termination of the Plan shall materially and adversely affect Awards already
granted unless either it relates to an adjustment pursuant to Section 13 above,
or it is otherwise mutually agreed between the Participant and the Committee,
which agreement must be in writing and signed by the Participant and the
Company. Notwithstanding the foregoing, the Committee may amend the Plan to
eliminate provisions which are no longer necessary as a result of changes in tax
or securities laws or regulations, or in the interpretation thereof.

18. CONDITIONS UPON ISSUANCE OF SHARES.

     Notwithstanding any other provision of the Plan or any agreement entered
into by the Company pursuant to the Plan, the Company shall not be obligated,
and shall have no liability for failure, to issue or deliver any Shares under
the Plan unless such issuance or delivery would comply with Applicable Law, with
such compliance determined by the Company in consultation with its legal
counsel.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 19


19. RESERVATION OF SHARES.

     The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy the
requirements of the Plan.

20. EFFECTIVE DATE.

     This Plan shall become effective on the date on which it has received
approval by a vote of a majority of the votes cast at a duly held meeting of the
Company's shareholders (or by such other shareholder vote that the Administrator
determines to be sufficient for the issuance of Shares or stock options
according to the Company's governing documents and applicable state law).

21. CONTROLLING LAW.

     All disputes relating to or arising from the Plan shall be governed by the
internal substantive laws (and not the laws of conflicts of laws) of the State
of Delaware, to the extent not preempted by United States federal law. If any
provision of this Plan is held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions shall continue to be fully
effective.

22. LAWS AND REGULATIONS.

     (a) U.S. Securities Laws. This Plan, the grant of Awards, and the exercise
of Options and SARs under this Plan, and the obligation of the Company to sell
or deliver any of its securities (including, without limitation, Options,
Restricted Shares, Restricted Share Units, Deferred Share Units, and Shares)
under this Plan shall be subject to all Applicable Law. In the event that the
Shares are not registered under the Securities Act of 1933, as amended (the
"Act"), or any applicable state securities laws prior to the delivery of such
Shares, the Company may require, as a condition to the issuance thereof, that
the persons to whom Shares are to be issued represent and warrant in writing to
the Company that such Shares are being acquired by him or her for investment for
his or her own account and not with a view to, for resale in connection with, or
with an intent of participating directly or indirectly in, any distribution of
such Shares within the meaning of the Act, and a legend to that effect may be
placed on the certificates representing the Shares.

     (b) Other Jurisdictions. To facilitate the making of any grant of an Award
under this Plan, the Committee may provide for such special terms for Awards to
Participants who are foreign nationals or who are employed by the Company or any
Affiliate outside of the United States of America as the Committee may consider
necessary or appropriate to accommodate differences in local law, tax policy or
custom. The Company may adopt rules and procedures relating to the operation and
administration of this Plan to accommodate the specific requirements of local
laws and procedures of particular countries. Without limiting the foregoing, the
Company is specifically authorized to adopt rules and procedures regarding the
conversion of local currency, taxes, withholding procedures and handling of
stock certificates which vary with the customs and requirements of particular
countries. The Company may adopt sub-plans and establish escrow accounts and
trusts as may be appropriate or applicable to particular locations and
countries.

23. NO SHAREHOLDER RIGHTS.

     Neither a Participant nor any transferee of a Participant shall have any
rights as a shareholder of the Company with respect to any Shares underlying any
Award until the date of issuance of a share certificate



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 20


to a Participant or a transferee of a Participant for such Shares in accordance
with the Company's governing instruments and Applicable Law. Prior to the
issuance of Shares pursuant to an Award, a Participant shall not have the right
to vote or to receive dividends or any other rights as a shareholder with
respect to the Shares underlying the Award, notwithstanding its exercise in the
case of Options and SARs. No adjustment will be made for a dividend or other
right that is determined based on a record date prior to the date the stock
certificate is issued, except as otherwise specifically provided for in this
Plan.

24. NO EMPLOYMENT RIGHTS.

     The Plan shall not confer upon any Participant any right to continue an
employment, service or consulting relationship with the Company, nor shall it
affect in any way a Participant's right or the Company's right to terminate the
Participant's employment, service, or consulting relationship at any time, with
or without Cause.

25. TERMINATION, RESCISSION AND RECAPTURE.

     (a) Each Award under the Plan is intended to align the Participant's
long-term interest with those of the Company. If the Participant engages in
certain activities discussed below, either during employment or after employment
with the Company terminates for any reason, the Participant is acting contrary
to the long-term interests of the Company. Accordingly, except as otherwise
expressly provided in the Award Agreement, the Company may terminate any
outstanding, unexercised, unexpired, unpaid, or deferred Awards ("Termination"),
rescind any exercise, payment or delivery pursuant to the Award ("Rescission"),
or recapture any Common Stock (whether restricted or unrestricted) or proceeds
from the Participant's sale of Shares issued pursuant to the Award
("Recapture"), if the Participant does not comply with the conditions of
subsections (b) and (c) hereof (collectively, the "Conditions").

     (b) A Participant shall not, without the Company's prior written
authorization, disclose to anyone outside the Company, or use in other than the
Company's business, any proprietary or confidential information or material, as
those or other similar terms are used in any applicable patent, confidentiality,
inventions, secrecy, or other agreement between the Participant and the Company
with regard to any such proprietary or confidential information or material.

     (c) Pursuant to any agreement between the Participant and the Company with
regard to intellectual property (including but not limited to patents,
trademarks, copyrights, trade secrets, inventions, developments, improvements,
proprietary information, confidential business and personnel information), a
Participant shall promptly disclose and assign to the Company or its designee
all right, title, and interest in such intellectual property, and shall take all
reasonable steps necessary to enable the Company to secure all right, title and
interest in such intellectual property in the United States and in any foreign
country.

     (d) Upon exercise, payment, or delivery of cash or Common Stock pursuant to
an Award, the Participant shall certify on a form acceptable to the Company that
he or she is in compliance with the terms and conditions of the Plan and, if a
severance of Continuous Service has occurred for any reason, shall state the
name and address of the Participant's then-current employer or any entity for
which the Participant performs business services and the Participant's title,
and shall identify any organization or business in which the Participant owns a
greater-than-five-percent equity interest.

     (e) If the Company determines, in its sole and absolute discretion, that
(i) a Participant has violated any of the Conditions or (ii) during his or her
Continuous Service, or within one year after its termination



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 21


for any reason, a Participant (a) has rendered services to or otherwise directly
or indirectly engaged in or assisted, any organization or business that, in the
judgment of the Company in its sole and absolute discretion, is or is working to
become competitive with the Company; (b) has solicited any non-administrative
employee of the Company to terminate employment with the Company; or (c) has
engaged in activities which are materially prejudicial to or in conflict with
the interests of the Company, including any breaches of fiduciary duty or the
duty of loyalty, then the Company may, in its sole and absolute discretion,
impose a Termination, Rescission, and/or Recapture with respect to any or all of
the Participant's relevant Awards, Shares, and the proceeds thereof.

     (f) Within ten days after receiving notice from the Company of any such
activity, the Participant shall deliver to the Company the Shares acquired
pursuant to the Award, or, if Participant has sold the Shares, the gain
realized, or payment received as a result of the rescinded exercise, payment, or
delivery; provided, that if the Participant returns Shares that the Participant
purchased pursuant to the exercise of an Option (or the gains realized from the
sale of such Common Stock), the Company shall promptly refund the exercise
price, without earnings, that the Participant paid for the Shares. Any payment
by the Participant to the Company pursuant to this Section 21 shall be made
either in cash or by returning to the Company the number of Shares that the
Participant received in connection with the rescinded exercise, payment, or
delivery. It shall not be a basis for Termination, Rescission or Recapture if
after termination of a Participant's Continuous Service, the Participant
purchases, as an investment or otherwise, stock or other securities of such an
organization or business, so long as (i) such stock or other securities are
listed upon a recognized securities exchange or traded over-the-counter, and
(ii) such investment does not represent more than a five percent (5%) equity
interest in the organization or business.

     (g) Notwithstanding the foregoing provisions of this Section, the Company
has sole and absolute discretion not to require Termination, Rescission and/or
Recapture, and its determination not to require Termination, Rescission and/or
Recapture with respect to any particular act by a particular Participant or
Award shall not in any way reduce or eliminate the Company's authority to
require Termination, Rescission and/or Recapture with respect to any other act
or Participant or Award. Nothing in this Section shall be construed to impose
obligations on the Participant to refrain from engaging in lawful competition
with the Company after the termination of employment that does not violate
subsections (b) or (c) of this Section, other than any obligations that are part
of any separate agreement between the Company and the Participant or that arise
under applicable law.

     (h) All administrative and discretionary authority given to the Company
under this Section shall be exercised by the most senior human resources
executive of the Company or such other person or committee (including without
limitation the Committee) as the Committee may designate from time to time.

     (i) Notwithstanding any provision of this Section, if any provision of this
Section is determined to be unenforceable or invalid under any applicable law,
such provision will be applied to the maximum extent permitted by applicable
law, and shall automatically be deemed amended in a manner consistent with its
objectives to the extent necessary to conform to any limitations required under
applicable law. Furthermore, if any provision of this Section is illegal under
any applicable law, such provision shall be null and void to the extent
necessary to comply with applicable law.

     Notwithstanding the foregoing, but subject to any contrary terms set forth
in any Award Agreement, this Section shall not be applicable: (i) to any
Participant who is not, on the Award Date, an Employee of the Company or its
Affiliates; and (ii) to any Participant from and after his or her termination of
Continuous Service after a Change in Control.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 22


                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                   ----------

                             APPENDIX A: DEFINITIONS

                                   ----------

     As used in the Plan, the following definitions shall apply:

     "AFFILIATE" means, with respect to any Person (as defined below), any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person or the power to elect directors, whether through the ownership of
voting securities, by contract or otherwise; and the terms "affiliated,"
"controlling" and "controlled" have meanings correlative to the foregoing.

     "APPLICABLE LAW" means the legal requirements relating to the
administration of options and share-based plans under applicable U.S. federal
and state laws, the Code, any applicable stock exchange or automated quotation
system rules or regulations, and the applicable laws of any other country or
jurisdiction where Awards are granted, as such laws, rules, regulations and
requirements shall be in place from time to time.

     "AWARD" means any award made pursuant to the Plan, including awards made in
the form of an Option, an SAR, a Restricted Share, a Restricted Share Unit, an
Unrestricted Share, a Deferred Share Unit, and a Performance Award, or any
combination thereof, whether alternative or cumulative, authorized by and
granted under this Plan.

     "AWARD AGREEMENT" means any written document setting forth the terms of an
Award that has been authorized by the Committee. The Committee shall determine
the form or forms of documents to be used, and may change them from time to time
for any reason.

     "BOARD" means the Board of Directors of the Company.

     "CAUSE" for termination of a Participant's Continuous Service will exist if
the Participant is terminated from employment or other service with the Company
or an Affiliate for any of the following reasons: (i) the Participant's willful
failure to substantially perform his or her duties and responsibilities to the
Company or deliberate violation of a material Company policy; (ii) the
Participant's commission of any material act or acts of fraud, embezzlement,
dishonesty, or other willful misconduct; (iii) the Participant's material
unauthorized use or disclosure of any proprietary information or trade secrets
of the Company or any other party to whom the Participant owes an obligation of
nondisclosure as a result of his or her relationship with the Company; or (iv)
Participant's willful and material breach of any of his or her obligations under
any written agreement or covenant with the Company.

     The Committee shall in its discretion determine whether or not a
Participant is being terminated for Cause. The Committee's determination shall,
unless arbitrary and capricious, be final and binding on the Participant, the
Company, and all other affected persons. The foregoing definition does not in
any way



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 23


limit the Company's ability to terminate a Participant's employment or
consulting relationship at any time, and the term "Company" will be interpreted
herein to include any Affiliate or successor thereto, if appropriate.

     "CHANGE IN CONTROL" means any of the following:

          (i) Acquisition of Controlling Interest. Any Person becomes the
     Beneficial Owner, directly or indirectly, of securities of the Company
     representing 50% or more of the combined voting power of the Company's then
     outstanding securities. In applying the preceding sentence, (i) securities
     acquired directly from the Company or its Affiliates by or for the Person
     shall not be taken into account, and (ii) an agreement to vote securities
     shall be disregarded unless its ultimate purpose is to cause what would
     otherwise be a Change in Control, as reasonably determined by the Board.

          (ii) Change in Board Control. During a consecutive 2-year period
     commencing after the date of adoption of this Plan, individuals who
     constituted the Board at the beginning of the period (or their approved
     replacements, as defined in the next sentence) cease for any reason to
     constitute a majority of the Board. A new Director shall be considered an
     "approved replacement" Director if his or her election (or nomination for
     election) was approved by a vote of at least a majority of the Directors
     then still in office who either were Directors at the beginning of the
     period or were themselves approved replacement Directors, but in either
     case excluding any Director whose initial assumption of office occurred as
     a result of an actual or threatened solicitation of proxies or consents by
     or on behalf of any Person other than the Board.

          (iii) Merger. The Company consummates a merger, or consolidation of
     the Company with any other corporation unless: (a) the voting securities of
     the Company outstanding immediately before the merger or consolidation
     would continue to represent (either by remaining outstanding or by being
     converted into voting securities of the surviving entity) at least 50% of
     the combined voting power of the voting securities of the Company or such
     surviving entity outstanding immediately after such merger or
     consolidation; and (b) no Person becomes the Beneficial Owner, directly or
     indirectly, of securities of the Company representing 50% or more of the
     combined voting power of the Company's then outstanding securities.

          (iv) Sale of Assets. The stockholders of the Company approve an
     agreement for the sale or disposition by the Company of all, or
     substantially all, of the Company's assets.

          (v) Liquidation or Dissolution. The stockholders of the Company
     approve a plan or proposal for liquidation or dissolution of the Company.

     Notwithstanding the foregoing, a "Change in Control" shall not be deemed to
have occurred by virtue of the consummation of any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to have substantially the same proportionate ownership in
an entity which owns all or substantially all of the assets of the Company
immediately following such transaction or series of transactions.

     "CODE" means the U.S. Internal Revenue Code of 1986, as amended.

     "COMMITTEE" means one or more committees or subcommittees of the Board
appointed by the Board to administer the Plan in accordance with Section 4
above. With respect to any decision involving an



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 24


Award intended to satisfy the requirements of Section 162(m) of the Code, the
Committee shall consist of two or more Directors of the Company who are "outside
directors" within the meaning of Section 162(m) of the Code. With respect to any
decision relating to a Reporting Person, the Committee shall consist of two or
more Directors who are disinterested within the meaning of Rule 16b-3.

     "COMPANY" means Commerce Energy Group, Inc., a Delaware corporation;
provided, however, that in the event the Company reincorporates to another
jurisdiction, all references to the term "Company" shall refer to the Company in
such new jurisdiction.

     "CONSULTANT" means any person, including an advisor, who is engaged by the
Company or any Affiliate to render services and is compensated for such
services.

     "CONTINUOUS SERVICE" means the absence of any interruption or termination
of service as an Employee, Director, or Consultant. Continuous Service shall not
be considered interrupted in the case of: (i) sick leave; (ii) military leave;
(iii) any other leave of absence approved by the Committee, provided that such
leave is for a period of not more than 90 days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; (iv)
changes in status from Director to advisory director or emeritus status; or (v)
in the case of transfers between locations of the Company or between the
Company, its Affiliates or their respective successors. Changes in status
between service as an Employee, Director, and a Consultant will not constitute
an interruption of Continuous Service.

     "DEFERRED SHARE UNITS" mean Awards pursuant to Section 9 of the Plan.

     "DIRECTOR" means a member of the Board, or a member of the board of
directors of an Affiliate.

     "DISABLED" means a condition under which a Participant --

          (a) is unable to engage in any substantial gainful activity by reason
     of any medically determinable physical or mental impairment which can be
     expected to result in death or can be expected to last for a continuous
     period of not less than 12 months, or

          (b) is, by reason of any medically determinable physical or mental
     impairment which can be expected to result in death or can be expected to
     last for a continuous period of not less than 12 months, received income
     replacement benefits for a period of not less than 3 months under an
     accident or health plan covering employees of the Company.

     "ELIGIBLE PERSON" means any Consultant, Director or Employee and includes
non-Employees to whom an offer of employment has been extended.

     "EMPLOYEE" means any person whom the Company or any Affiliate classifies as
an employee (including an officer) for employment tax purposes, whether or not
that classification is correct. The payment by the Company of a director's fee
to a Director shall not be sufficient to constitute "employment" of such
Director by the Company.

     "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.

     "FAIR MARKET VALUE" means, as of any date (the "Determination Date") means:
(i) the closing price of a Share on the New York Stock Exchange or the American
Stock Exchange (collectively, the



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 25


"Exchange"), on the Determination Date, or, if shares were not traded on the
Determination Date, then on the nearest preceding trading day during which a
sale occurred; or (ii) if such stock is not traded on the Exchange but is quoted
on NASDAQ or a successor quotation system, (A) the last sales price (if the
stock is then listed as a National Market Issue under The Nasdaq National Market
System) or (B) the mean between the closing representative bid and asked prices
(in all other cases) for the stock on the Determination Date as reported by
NASDAQ or such successor quotation system; or (iii) if such stock is not traded
on the Exchange or quoted on NASDAQ but is otherwise traded in the
over-the-counter, the mean between the representative bid and asked prices on
the Determination Date; or (iv) if subsections (i)-(iii) do not apply, the fair
market value established in good faith by the Board.

     "GRANT DATE" has the meaning set forth in Section 14 of the Plan.

     "INCENTIVE SHARE OPTION OR ISO" hereinafter means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code, as designated in the applicable Award Agreement.

     "INVOLUNTARY TERMINATION" means termination of a Participant's Continuous
Service under the following circumstances occurring on or after a Change in
Control: (i) termination without Cause by the Company or an Affiliate or
successor thereto, as appropriate; or (ii) voluntary termination by the
Participant within 60 days following (A) a material reduction in the
Participant's job responsibilities, provided that neither a mere change in title
alone nor reassignment to a substantially similar position shall constitute a
material reduction in job responsibilities; (B) an involuntary relocation of the
Participant's work site to a facility or location more than 50 miles from the
Participant's principal work site at the time of the Change in Control; or (C) a
material reduction in Participant's total compensation other than as part of an
reduction by the same percentage amount in the compensation of all other
similarly-situated Employees, Directors or Consultants.

     "NON-ISO" means an Option not intended to qualify as an ISO, as designated
in the applicable Award Agreement.

     "OPTION" means any stock option granted pursuant to Section 6 of the Plan.

     "PARTICIPANT" means any holder of one or more Awards, or the Shares
issuable or issued upon exercise of such Awards, under the Plan.

     "PERFORMANCE AWARDS" mean Performance Units and Performance Compensation
Awards granted pursuant to Section 10.

     "PERFORMANCE COMPENSATION AWARDS" mean Awards granted pursuant to Section
10(b) of the Plan.

     "PERFORMANCE UNIT" means Awards granted pursuant to Section 10(a) of the
Plan which may be paid in cash, in Shares, or such combination of cash and
Shares as the Committee in its sole discretion shall determine.

     "PERSON" means any natural person, association, trust, business trust,
cooperative, corporation, general partnership, joint venture, joint-stock
company, limited partnership, limited liability company, real estate investment
trust, regulatory body, governmental agency or instrumentality, unincorporated
organization or organizational entity.



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 26


     "PLAN" means this Commerce Energy Group, Inc. 2006 Stock Incentive Plan.

     "REPORTING PERSON" means an officer, Director, or greater than ten percent
shareholder of the Company within the meaning of Rule 16a-2 under the Exchange
Act, who is required to file reports pursuant to Rule 16a-3 under the Exchange
Act.

     "RESTRICTED SHARES" mean Shares subject to restrictions imposed pursuant to
Section 8 of the Plan.

     "RESTRICTED SHARE UNITS" mean Awards pursuant to Section 8 of the Plan.

     "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act, as
amended from time to time, or any successor provision.

     "SAR" OR "SHARE APPRECIATION RIGHT" means Awards granted pursuant to
Section 7 of the Plan.

     "SHARE" means a share of common stock of the Company, par value $0.001, as
adjusted in accordance with Section 13 of the Plan.

     "TEN PERCENT HOLDER" means a person who owns stock representing more than
ten percent (10%) of the combined voting power of all classes of stock of the
Company or any Affiliate.

     "UNRESTRICTED SHARES" mean Shares awarded pursuant to Section 8 of the
Plan.

                         FEDERAL INCOME TAX CONSEQUENCES

          The following is a general discussion of certain U.S. federal income
tax consequences relating to awards granted under the 2006 Stock Incentive Plan.
This discussion does not address all aspects of U.S. federal income taxation,
does not discuss state, local and foreign tax issues and does not discuss
considerations applicable to a holder who is, with respect to the United States,
a non-resident alien individual. This summary of federal income tax consequences
does not purport to be complete and is based upon interpretations of the
existing laws, regulations and rulings which could be altered materially with
enactment of any new tax legislation.

          Under the United States Internal Revenue Code (the "Code"), the
Company will generally be entitled to a deduction for federal income tax
purposes at the same time and in the same amount as the ordinary income that
participants recognize pursuant to awards (subject to the participant's overall
compensation being reasonable, and to the discussion below with respect to Code
section 162(m)). For participants, the expected U.S. tax consequences of awards
are as follows:

          ISOs. ISOs may only be granted to employees and must be exercised
while employed or within 3 months of the termination of employment (except in
cases of death or disability). A participant will not recognize income upon the
grant of an ISO. There are generally no tax consequences to the participant upon
exercise of an ISO (except the amount by which the fair market value of the
shares at the time of exercise exceeds the option exercise price is a tax
preference item possibly giving rise to an alternative minimum tax). If the
shares are not disposed of within two years from the date the ISO was granted or
within one year after the ISO was exercised, any gain realized upon the
subsequent disposition of the shares will be characterized as long-term capital
gain and any loss will be characterized as long-term capital loss. If either of
these holding period requirements are not met, then a "disqualifying
disposition" occurs and (a) the participant recognizes ordinary income gain in
the amount by which the fair market value of the shares at the time of exercise



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 27


exceeded the exercise price for the ISO and (b) any remaining amount realized on
disposition (except for certain "wash" sales, gifts or sales to related persons)
will be characterized as capital gain or loss.

          If a participant pays the option exercise price of an ISO by the
surrender of unrestricted shares of Common Stock that he or she already owns, he
or she will not recognize gain or loss on the shares surrendered. A number of
shares received equal to the number of shares surrendered will have a basis
equal to the basis of the shares surrendered, and the participant's holding
period of such shares received will include the holding period of the shares
surrendered. To the extent that the value of the shares received exceeds the
value of the shares surrendered, those shares received that represent such
excess in value will have a basis equal to zero and a holding period that will
commence on the day they are acquired. However, if a participant surrenders
shares that were acquired through the previous exercise of an ISO before the end
of the requisite holding period, the participant may recognize ordinary income
on the surrender of those shares.

          Options otherwise qualifying as ISOs will be treated as non-ISOs to
the extent that the fair market value of the shares with respect to which
incentive stock options granted after 1986 are exercisable for the first time by
a participant during any calendar year (under all of the Company's plans and
those of any of its subsidiaries) exceeds $100,000. This rule is applied by
taking the options into account in the order in which they are granted.

          Non-ISOs. A participant will not recognize income at the time that a
non-ISO is granted. At the time a non-ISO is exercised, the participant will
recognize ordinary income in an amount equal to the excess of (a) the fair
market value of the shares issued to the participant on the exercise date over
(b) the exercise price paid for the shares. At the time of sale of shares
acquired pursuant to the exercise of a non-ISO, the appreciation (or
depreciation) in value of the shares after the date of exercise will be treated
either as short-term or long-term capital gain (or loss) depending on how long
the shares have been held.

          If a participant pays the option price of a non-ISO in whole or in
part by the surrender of Common Stock that he or she already owns, he or she
will not recognize gain or loss on the shares surrendered. A number of shares
received equal to the number of shares surrendered will have a tax basis equal
to the basis of the shares surrendered, and the participant's holding period of
such shares received will include the holding period of the shares surrendered.
To the extent that the value of the shares received upon exercise exceeds the
value of the shares surrendered, the excess (reduced by the amount of any cash
paid by the participant) will be ordinary income. Furthermore, the shares
received that represent such excess in value will have a basis equal to their
fair market value and a holding period that will commence on the day after they
are acquired. However, if the shares surrendered are considered substantially
non-vested property within the meaning of Section 83 of the Code, a Section
83(b) Election (as defined below) with respect to the shares has not been made,
and certain shares received upon exercise are considered substantially
non-vested property, the participant will generally recognize ordinary income in
the year during which the restrictions terminate on the shares received.

          Share Appreciation Rights. A participant to whom a SAR is granted will
not recognize income at the time of grant of the SAR. Upon exercise of a SAR,
the participant must recognize taxable compensation income in an amount equal to
the amount or cash received and the fair market value of any shares that the
participant receives.

          Restricted Shares, Restricted Share Units, Deferred Share Units,
Performance Awards, and Unrestricted Shares. In general, a participant will not
recognize income at the time of grant of restricted shares, restricted share
units, deferred share units, or performance awards, unless the participant
elects with respect to restricted shares or restricted share units to accelerate
income taxation to the date of the award pursuant to an election under Section
83(b) of the Code (a "Section 83(b) Election"). In this event, a participant
would recognize ordinary income equal to the excess of the market value of the
restricted shares over any amount the participant pays



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 28


for them (in which case subsequent gain or loss would be capital in nature). In
the absence of an election to accelerate income taxation to the date of an
award, a participant must recognize taxable compensation income equal to the
value of any cash or unrestricted shares that the participant receives. The same
tax consequences apply to performance awards and awards of unrestricted shares.

          Special Tax Provisions. Under certain circumstances, the accelerated
vesting, cash-out or accelerated lapse of restrictions on awards in connection
with a change in control of the Company might be deemed an "excess parachute
payment" for purposes of the golden parachute tax provisions of Code section
280G, and the participant may be subject to a 20% excise tax and the Company may
be denied a tax deduction. Furthermore, the Company may not be able to deduct
the aggregate compensation in excess of $1,000,000 attributable to awards that
are not performance-based" within the meaning of Code section 162(m) in certain
circumstances. The 2005 Plan is designed to permit certain awards that qualify
as performance-based compensation for this purpose.

          Special Rules Applicable to Insiders. In limited circumstances where
the sale of Common Stock received as a result of a grant or award could subject
those participants who are directors or officers of the Company subject to
Section 16(b) of the Exchange Act (collectively, "Insiders") to a lawsuit under
Section 16(b) of the Exchange Act, the tax consequences to the Insider may
differ from the tax consequences described above. In these circumstances, unless
Section 83(b) Election has been made, the principal difference (in cases where
the Insider would otherwise be currently taxed upon the participant's receipt of
the stock) usually will be to postpone valuation and taxation of the stock
received so long as the sale of the stock received could subject the Insider to
suit under Section 16(b) of the Exchange Act, but no longer than six months.

                 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

          The following documents previously filed by the Company with the
Securities and Exchange Commission (the "Commission") are incorporated herein by
reference:

               -    The Company's Annual Report on Form 10-K for the year ended
                    July 31, 2005 filed with the Commission on October 31, 2005;

               -    The Company's Quarterly Report on Form 10-Q for the quarter
                    ended October 31, 2005 filed with the Commission on December
                    15, 2005;

               -    The Company's Quarterly Report on Form 10-Q for the quarter
                    ended January 31, 2006 filed with the Commission on March
                    16, 2006;

               -    The Company's amended Quarterly Report on Form 10-Q/A
                    (Amendment No. 1) for the quarter ended October 31, 2004
                    filed with the Commission on October 31, 2005;

               -    The Company's amended Quarterly Report on Form 10-Q/A
                    (Amendment No. 3) for the quarter ended January 31, 2005
                    filed with the Commission on October 31, 2005;

               -    The Company's amended Quarterly Report on Form 10-Q/A
                    (Amendment No. 2) for the quarter ended April 30, 2005 filed
                    with the Commission on October 31, 2005;

               -    The Registrant's Current Reports on Form 8-K, as filed with
                    the Commission on August 2, 2005, August 5, 2005, August 30,
                    2005, September 30, 2005, October 13, 2005, October 31,
                    2005, November 14, 2005, November 17, 2005, November 23,
                    2005, December 2, 2005, December 6, 2005, December 8, 2005,
                    December 15, 2005 (but specifically not incorporating by
                    reference herein the Form 8-K filed on December 15, 2005
                    announcing the Company's earnings for the quarter ended
                    October 31, 2005), February 1, 2006, March 2, 2006 and April
                    18, 2006;

               -    The Company's amended Current Report on Form 8-K/A
                    (Amendment No. 2) filed with the Commission on August 2,
                    2005; and



Commerce Energy Group, Inc.
2006 Stock Incentive Plan Prospectus
Page 29


               -    the description of the Common Stock, par value $.001 per
                    share, of the Company and the common stock purchase rights,
                    which is incorporated by reference into the Company's
                    registration statement on Form 8-A, filed with the
                    Commission on July 6, 2004, pursuant to the Securities
                    Exchange Act of 1934, as amended (the "Exchange Act") and
                    any amendment or report filed for the purpose of updating
                    such description.

          In addition, all documents filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment which indicates that all securities
offered have been sold or which de-registers all securities then remaining
unsold, shall be deemed to be incorporated by reference into this Memorandum and
to be a part hereof from the date of filing of such documents with the
Securities and Exchange Commission.

          Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Memorandum to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Memorandum.

                      USE OF PROCEEDS, TAX WITHHOLDING AND
                                    NO LIENS

          Any proceeds that the Company receives from the sale of Common Stock
pursuant to Awards will be used for general corporate purposes. Employment and
withholding taxes will apply to the income arising from Awards. Participants
will not be subject to any additional charges (other than payment of the
exercise price for Options) in connection with their Awards. Nor does the Plan
allow for any liens on any Awards, funds, or Common Stock that Participants hold
or may receive pursuant to the Plan.

                             ADDITIONAL INFORMATION

          Additional information about the Plan and its administrators may be
obtained from, and copies of the following documents or reports will be
furnished without charge upon written or oral request to the Secretary, Commerce
Energy Group, Inc., 600 Anton Boulevard, Suite 2000, Costa Mesa, California
92626; telephone number (714) 259-2500:

               -    Documents or reports incorporated by reference in this
                    Memorandum (excluding exhibits to such documents or reports
                    unless such exhibits are specifically incorporated by
                    reference into such documents or reports);

               -    The Company's annual report to shareholders for the latest
                    fiscal year; and

               -    All reports, proxy statements and other communications
                    distributed to the shareholders of the Company.

          All participants shall receive, if they do not otherwise receive such
materials, copies of all reports, proxy statements and other communications
distributed to the Company's security holders generally. Such materials shall be
delivered not later than the time at which they are sent to the Company's
security holders.



                                                                       EXHIBIT C

                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

                FORM OF EXERCISE OF STOCK OPTION AWARD AGREEMENT

                                   ----------

             Commerce Energy Group, Inc.
Attention:   2006 Stock Incentive Plan Committee
             600 Anton Boulevard
             Costa Mesa, California 92626

Dear Sir or Madam:

     The undersigned elects to exercise his/her Incentive Stock Option to
purchase _____ shares of Common Stock of Commerce Energy Group, Inc. (the
"Company") under and pursuant to a Stock Option Agreement dated as of
_____________.

     1. [ ] Delivered herewith is a certified or bank cashier's or teller's
check and/or shares of Common Stock held by the undersigned for at least six
months*, valued at the closing sale price of the stock on the business day prior
to the date of exercise, as follows:

     $____________   in cash or check

     $____________   in the form of ____ shares of Common Stock, valued at

                     $___________ per share

     $____________   TOTAL

     2. [ ] Delivered herewith are irrevocable instructions to a broker approved
by the Company to deliver promptly to the Company the amount of sale or loan
proceeds to pay the exercise price.**

     If method 1 is chosen, the name or names to be on the stock certificate or
certificates and the address and Social Security Number of such person(s) is as
follows:

Name: ________________________________________________________________________

Address: _____________________________________________________________________

Social Security Number _______________________________________________________


                                        Very truly yours,


- -------------------------------------   ----------------------------------------
Date                                    Optionee

*    The Committee may waive the six months' requirement in its discretion.

**   The Committee must approve this method in writing before your election



                                                                       EXHIBIT D

                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

                           DESIGNATION OF BENEFICIARY

                                   ----------

          In connection with Award Agreements between Commerce Energy Group,
Inc. (the "Company") and _______________, an individual residing at
___________________ (the "Recipient"), the Recipient hereby designates the
person specified below as the beneficiary of the Recipient's interest in Awards
as defined in the Company's 2006 Stock Incentive Plan (the "Plan"). This
designation shall remain in effect until revoked in writing by the Recipient.

             Name of Beneficiary: _______________________________________

             Address:             _______________________________________

                                  _______________________________________

                                  _______________________________________

             Social Security No.: _______________________________________


     This beneficiary designation relates to any and all of Recipient's rights
under the following Award or Awards:

          [ ]  any Award that Recipient has received under the Plan.

          [ ]  the _________________ Award that Recipient received pursuant to
               an award agreement dated _________ __, ____ between Recipient and
               the Company.

          The Recipient understands that this designation operates to entitle
the above-named beneficiary to the rights conferred by an Award from the date
this form is delivered to the Company until such date as this designation is
revoked in writing by the Recipient, including by delivery to the Company of a
written designation of beneficiary executed by the Recipient on a later date.

                                        Date:
                                              ----------------------------------


                                        By:
                                            ------------------------------------
                                            [Recipient Name]


Sworn to before me this
____ day of ____________, 200_


- -------------------------------------
Notary Public

County of
          ---------------------------
State of
         ----------------------------

EX-10.7

EXHIBIT 10.7

COMMERCE ENERGY GROUP, INC.
BONUS PROGRAM

Plan Document

As Amended by First Amendment
Adopted March 27, 2007

COMMERCE ENERGY GROUP, INC.
BONUS PROGRAM

Plan Document

ARTICLE I
PURPOSE OF THE PLAN

The Commerce Energy Group, Inc. (the “Company”) established this Commerce Energy Group, Inc. Bonus Program (the “Plan”) to provide employees with an increased awareness and ongoing interest in the direction of the Company. The Plan is designed to ensure that employees are appropriately awarded for both corporate and individual performance.

ARTICLE II
DEFINITIONS

2.1	“Board” shall mean the Board of Directors of the Company.
2.2	“Bonus” shall mean the amount payable to a Participant under the Plan.
2.3	“Bonus Group” shall mean the Executive Team, the Management Team or the Staff Team, or any or all of them, as established and comprised of in the Committee’s sole discretion.
2.4	“Bonus Pool” shall mean discretionary funds established by the Committee pursuant to Sections 4.2(a)(i) and 4.2(a)(vi) herein.
2.5	“Committee” shall mean the compensation committee of the Board.
2.6	“Contractor” shall mean an individual who provides services to the Company, but is not employed by the Company.
2.7	“Earned Bonus Percentage” shall mean the portion of the Potential Bonus Percentage that a Participant may receive based on the Committee’s evaluation and assessment of the Qualitative Individual Measures set forth in Section 4.2(c) herein.
2.8	“Executive Team” shall mean the executives responsible for the governance of the Company who are designated as Executive Team members in the Committee’s sole discretion.
2.9	“Fiscal Year” shall mean the period commencing August 1st and ending July 31st.

1

2.10 “Management Team” shall mean the managers who are responsible for the operations of the departments and functional units of the Company and who are designated as Management Team members in the Committee’s sole discretion.

2.11 “Net Income” shall mean the Company’s net income from operations, including interest income and expense, for any Fiscal Year after bonus accruals under this Plan are deducted.

2.12 “Participant” shall mean the employees of the Company eligible to receive a Bonus under the Plan, pursuant to Article III.

2.13 “Part-Time Employee” shall mean an employee who is customarily employed by the Company for an average of fewer than 20 hours per week.

2.14 “Potential Bonus Percentage” shall mean the maximum amount of Bonus, expressed as a percentage of a Participant’s base salary, that is potentially payable to the Participant under the Plan based on the attainment of the Quantitative Company Measures set forth in Section 4.2(a) herein.

ARTICLE III
ELIGIBILITY FOR PARTICIPATION

3.1 CONDITIONS FOR BECOMING AN ELIGIBLE PARTICIPANT. Conditions for becoming an eligible participant are met upon the commencement of full-time employment within the first nine months (August 1 through April 30) of the Fiscal Year, subject to the limitation set forth in Section 4.3(a). Employees who participate in one or more of the Company’s commission incentive programs are eligible to participate in this Plan, subject to the limitation set forth in Section 4.3 herein.

3.2 EXCLUDED EMPLOYEES. Part-Time Employees and Contractors are not eligible to participate in this Plan.

ARTICLE IV
PAYMENTS

4.1 AUTHORIZATION OF PAYMENTS. No Bonus is payable under the Plan for a Fiscal Year unless the Committee determines Bonuses may be payable for such Fiscal Year and provides Participants with written notice of such determination. The Committee, thereafter, specifically authorizes the Bonus payments to the Participants, provided the pre-established objectives are met for such Fiscal Year.

4.2 FINANCIAL GOAL AND PERFORMANCE FACTORS TRIGGERING BONUS. In its sole and absolute discretion, the Committee determines Bonus payments under the Plan by establishing quantitative factors specific to the Company, taking into account the Participant’s level in the Company, and assessing the Participant’s attainment of qualitative individual performance measures.

2

(a) Quantitative Company Measures. A Participant’s Potential Bonus Percentage is determined based on the Company’s Net Income. If at the close of any Fiscal Year, the Company achieves Net Income, the Plan will become active for such year; otherwise, the Plan will be inactive for any Fiscal Year and no Bonus payments will be made hereunder. Provided Net Income results for any Fiscal Year, Potential Bonus Percentages or, if applicable, the discretionary bonus pool is determined according to the following schedule:

(i)	Net Income Less Than Trigger Target. If the Company’s Net Income for any Fiscal Year is less than the Trigger Target (a Net Income amount determined by the Committee from time to time), the Committee in its sole discretion may establish a Bonus Pool and allocate bonuses among members of the Management Team and/or Staff Team as the Committee deems appropriate. No bonuses may be paid to the Executive Team under this Plan if Net Income for any Fiscal Year is less than the Trigger Target.
(ii)	Trigger Target. If the Company’s Net Income for any Fiscal Year is equal to or greater than the Trigger Target but less than the Stretch Target (as described below), the Potential Bonus Percentages for the CEO, Participants within the Executive Team (other than the CEO), the Management Team and the Staff Team shall be amounts determined by the Committee by the last day of the third month following the start of the Fiscal Year to which the bonus relates.
(iii)	Stretch Target. If the Company’s Net Income for any Fiscal Year is equal to or greater than the Stretch Target (a Net Income amount in excess of the Trigger Target, which shall be determined by the Committee from time to time), but less than the Enhanced Stretch Target (as described below), the Potential Bonus Percentages for the CEO, Participants within the Executive Team (other than the CEO), the Management Team and the Staff Team is shall be amounts determined by the Committee by the last day of the third month following the start of the Fiscal Year to which the bonus relates.
(iv)	Enhanced Stretch Target. If the Company’s Net Income for any Fiscal Year is equal to or greater than the Enhanced Stretch Target (a Net Income amount in excess of the Stretch Target, which shall be determined by the Committee from time to time), but less than the Super Stretch Target (as described below), the Potential Bonus Percentages for the CEO, Participants within the Executive Team (other than the CEO), the Management Team and the Staff Team shall be amounts determined by the Committee by the last day of the third month following the start

3

of the Fiscal Year to which the bonus relates.

(v)

Super Stretch Target. If the Company’s Net Income for any Fiscal Year is equal to or greater than the Super Stretch Target (a Net Income amount in excess of the Enhanced Stretch Target, which shall be determined by the Committee from time to time), the Potential Bonus Percentages for the CEO, Participants within the Executive Team (other than the CEO), the Management Team and the Staff Team shall be amounts determined by the Committee by the last day of the third month following the start of the Fiscal Year to which the bonus relates.

(vi)

Net Income in Excess of the Super Stretch Target. If the Company’s Net Income for any Fiscal Year is greater than Super Stretch Target, the Committee may establish a Bonus Pool and allocate among and distribute the Bonus Pool to members of the Bonus Groups as the Committee determines in its sole discretion.

(b)

Participant’s Level. If the Committee determines that the Plan is active for any Fiscal Year (as determined under Section 4.2(a) herein), the Bonus is payable in an amount appropriate for the Participant’s level in the Company. Bonus Groups, consisting of the Executive Team, Management Team and Staff Team, are used to categorize the levels and bonus amounts of the Participants.

(c)

Qualitative Individual Measures. The Plan, if active for any Fiscal Year (as determined under Section 4.2(a) herein), is designed to link a Participant’s Bonus with the Company’s performance by establishing target objectives for each Participant and assessing the Participant’s attainment of such objectives. The objectives for each Bonus Group fall within the following categories (also referred to as “Compass Points”):

(i)	Executive Team — Financial, investors, customers, peers and leadership.
(ii)	Management Team — Financial, departmental and leadership.
(iii)	Staff Team — Financial, departmental and individual.

(d) Creation of Goals. The Participants’ objectives and measurements thereof shall be written and pre-established. To be pre-established, the objective must be approved (consistent with the procedures set forth in parts (i) through (iii) of this sub-section (d)) by the last day of the third month following the start of the Fiscal Year to which the objective relates (or within 30 days after the date the individual first becomes eligible to participate in the Plan, if later), and the outcome must be uncertain at the time the objective is established. To ensure a balanced approach to the various objectives applied to determine a Participant’s Bonus, each objective will be assigned a weight value (expressed as a percentage) based upon the overall objectives of the Company. The foregoing shall be

4

communicated to each Participant as soon as practicable after the establishment of the objectives, measurements and weight values.

(i)	CEO and Executive Team. The CEO and members of the Executive Team shall recommend objectives (as well as measurements and weight values thereof) applicable to the CEO and members of the Executive Team for approval by the Committee. Each Executive Team member shall have goals that are specific to their position. Members of the Executive Team shall share at least two common objectives, which encourages and requires the team to work closely together to achieve the objectives.
(ii)	Management Team. The CEO and members of the Executive Team shall establish and approve financial, departmental and leadership objectives (as well as measurements and weight values thereof) for members of the Management Team.
(iii)	Staff Team. The CEO, Executive Team and Management Team, acting jointly or severally, shall establish and approve financial, departmental and leadership objectives (as well as measurements and weight values thereof) for members of the Staff Team.

(e) Review Process. As soon as practicable after the Fiscal Year audit is completed and the Plan is determined to be active, each Participant’s performance will be reviewed in relation to the pre-established Company objectives, as well as the execution of the individually-assigned duties. The performance ratings, expressed as a percentage (the Earned Bonus Percentage) are applied to determine the amount of the Bonus Payment in accordance with Section 4.3 herein.

(i)	CEO Review Process. An annual review of the CEO will be completed by the Chairman of the Board and the Chairman of the Committee.
(ii)	Executive Team Review Process. An annual review of the Executive Team members, other than the CEO, will be completed by the CEO and the Committee.
(iii)	Management Team Review Process. An annual review of the Management Team members will be completed by the CEO and members of the Executive Team.
(iv)	Staff Team Review Process. An annual review of the Staff Team members will be completed by the members of the Management Team.

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(f) Initial Year of Plan. For Fiscal Year 2007, the Committee shall, upon the effective date of the Plan, (i) establish the Trigger Target, Stretch Target, Enhanced Stretch Target, and Super Stretch Target (collectively, the “Target Thresholds”); (ii) establish the Potential Bonus Percentages for the CEO and the Bonus Groups with respect to the various Target Thresholds; and (iii) create Participant objectives and corresponding measurements and weight values thereof, notwithstanding the provisions of Sections 4.2(a) and 4.2(d) herein with respect to the timing for completion of the foregoing.

4.3 CALCULATION OF BONUSES. If the Plan is active for any Fiscal Year (as determined under Section 4.2(a) herein), each Participant shall become eligible to receive a Bonus, to be paid in accordance with Section 4.5 herein, equal to: the product of (x) the Participant’s Potential Bonus Percentage, and (y) the Participant’s Earned Bonus Percentage, and (z) the Participant’s base annual salary, as in effect on the last day of the ninth month (April 30th) of the Fiscal Year to which the Bonus relates; plus any allocation from the Bonus Pool as determined under Sections 4.2(a)(i) and 4.2(a)(vi) herein; and reduced (but not below zero) by any amounts paid from the Company’s commission incentive programs.

(a) Proration. If an employee enters the Plan after the first day of the Fiscal Year to which the Bonus payment relates, the Bonus may be prorated, in the sole discretion of the Committee, based on the length of time the individual served as an employee of the Company during such Fiscal Year.

4.4 VESTING. To receive a Bonus pursuant to Section 4.5 below, a Participant must complete at least three months of service and be an active employee of the Company in good standing on the date the bonus is paid. The Bonus has no cash out value until the payment date. If a Participant’s termination of service occurs for any reason prior to the payment date, the Participant shall forfeit all rights to the Bonus.

4.5 TIME AND METHOD OF PAYMENT. Each Participant’s Bonus shall be paid in a lump sum payment after the Fiscal Year audit to which the Bonus relates is completed and the individual evaluation process has been finalized.

4.6 APPLICABLE TAXES.

(a)

Employment Taxes. The Company shall withhold from each Participant’s Bonus, in a manner determined by the Company, the Participant’s share of FICA, withholding taxes and other employment taxes.

(b)

Income Taxes and Deferred Compensation. Participants are solely responsible and liable for the satisfaction of all taxes and penalties that may arise in connection with this Plan (including any taxes arising under Section 409A of the Internal Revenue Code). Neither the Company nor its affiliates nor any of their directors, agents or employees shall have any obligation to indemnify or otherwise hold any Participant harmless from any or all of such taxes.

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ARTICLE V
RIGHTS OF PARTICIPANTS

5.1 IN GENERAL. All payments are subject to the terms and conditions herein. Although Participant’s performance may be rated periodically during any Fiscal Year and progress may be tracked, all Bonus payments are subject to the calculation as set forth in Section 4.3 herein. The mere existence of periodic performance assessments or Company performance tracking does not give the Participant any basis for claiming any Bonus under this Plan on a pro rata basis during the fiscal year or otherwise.

5.2 NOT A CONTRACT OF EMPLOYMENT. Nothing in this Plan gives a Participant the right to remain in the employ of the Company. Except to the extent explicitly provided otherwise in a then effective written employment contract executed by the Participant and the Company, Participant is an at will employee whose employment may be terminated without liability at any time for any reason.

5.3 CLAWBACK RELATING TO CERTAIN FINANCIAL RESTATEMENT. To the extent permitted by governing law, the Board shall have the discretion to require that each member of the Executive Team reimburse the Company for all or any portion of the Bonus if:

(a)	Bonus Payment Is Dependent on Financial Results. The payment, grant or vesting was predicated upon the achievement of certain financial results that were subsequently the subject of a material financial restatement;
(b)	Fraud or Misconduct. In the Board’s view, the member of the Executive Team engaged in fraud or misconduct that caused or partially caused the need for a material financial restatement by the Company or any substantial affiliate; and
(c)	Lower Payment Results. A lower payment, award or vesting would have occurred based upon the restated financial results.
	In each such instance, the Company will, to the extent practicable and allowable under applicable laws, require reimbursement of any Bonus awarded to a member of the Executive Team in the amount by which the individual’s annual bonus exceeded the lower payment that would have been made based on the restated financial results, plus a reasonable rate of interest; provided that the Company will not seek to recover bonuses paid more than three years prior to the date the applicable restatement is disclosed.

In addition, the Board could terminate the member of the Executive Team for cause, authorize legal action for breach of fiduciary duty, assert rights under Section 304 of the Sarbanes-Oxley Act, or take such other action to enforce the executive’s obligations to the Company as may fit the facts surrounding the particular case.

7

ARTICLE VI
ADMINISTRATION

The Plan shall be administered by the Committee. The Committee shall have the right to construe the Plan, to interpret any provision of the Plan, to make rules and regulations relating to the Plan, and to determine any factual question arising in connection with the Plan’s operation after such investigation or hearing as the Committee may deem appropriate. Any decision made by the Committee under the provisions of this Article shall be conclusive and binding on all parties concerned. The Committee may delegate to the officers or employees of the Company the authority to execute and deliver those instruments and documents, to do all acts and things, and to take all other steps deemed necessary, advisable or convenient for the administration of this Plan in accordance with its terms and purpose.

ARTICLE VII
AMENDMENT OR TERMINATION OF PLAN

The Board or the Committee shall have the unilateral right to amend, suspend or terminate this Plan at any time with respect to all or some Participants and with respect to any unearned or unvested Bonus that is or could become payable. If such amendment or termination of the Plan would have a material and adverse affect on a Participant’s earned, but unvested Bonus, then written consent of the Participant is required with respect to such Bonus.

ARTICLE VIII
EFFECTIVE DATE

This Plan shall be effective January 25, 2007.

8

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO 17 CFR 240.13a-14(a)
PROMULGATED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Steven S. Boss, Chief Executive Officer of Commerce Energy Group, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended April 30, 2007 of Commerce Energy Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: June 14, 2007	By:	/s/ STEVEN S. BOSS
		Steven S. Boss
		Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO 17 CFR 240.13a-14(a)
PROMULGATED UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Lawrence Clayton, Jr., Senior Vice President and Chief Financial Officer of Commerce Energy Group, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended April 30, 2007 of Commerce Energy Group, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: June 14, 2007	By:	/s/ LAWRENCE CLAYTON, JR.
		Lawrence Clayton, Jr.,
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
RULE 13(a)-14(b) AND 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Commerce Energy Group, Inc. (the “Company”) on Form 10-Q for the quarterly period ended April 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Steven S. Boss, Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1.	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: June 14, 2007	By:	/s/ STEVEN S. BOSS
		Steven S. Boss
		Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
RULE 13(a)-14(b) AND 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the Quarterly Report of Commerce Energy Group, Inc. (the “Company”) on Form 10-Q for the quarterly period ended April 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lawrence Clayton, Jr., Senior Vice President and Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1.	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: June 14, 2007	By:	/s/ LAWRENCE CLAYTON, JR.
		Lawrence Clayton, Jr.,
		Senior Vice President and Chief Financial Officer (Principal Financial Officer)