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                                                                    Exhibit 10.7

Explanatory Note: Text in the following exhibit contained in square brackets and
denoted with an asterisk - [example]* - indicates text that is struck through by
hand in the original agreement accompanied by the initials "IBC." Text in the
following exhibit contained in curved brackets and denoted with a pound symbol -
{example}# - indicates additional text that handwritten on the original
agreement accompanied by the initials "IBC."

                              EMPLOYMENT AGREEMENT

      THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of December
1, 2001 between Commonwealth Energy Corporation, a California corporation (the
"Company") and Michael G. Nelson ("Employee"), with reference to the following:

      A. Employee has heretofore acted as Assistant General Counsel to the
Company, and in that capacity has rendered valuable services to the Company.

      B. The Company and Employee desire that Employee continue to provide
services to the Company as an employee of the Company on the terms provided
herein.

      NOW, THEREFORE, in consideration of the various covenants and agreements
hereinafter set forth, the parties hereto agree as follows:

      1. Term of Employment. The Company hereby employs Employee and Employee
accepts such employment for a term of twenty-four (24) months, commencing on
December 1, 2001 and terminating on December 31, 2003 (the "Initial Term");
provided, however, that the term of this Agreement shall automatically renew for
successive twelve (12) month periods (each a "Renewal Term") commencing on the
expiration of the Initial Term or the then current Renewal Term, as the case may
be, unless, not less than ninety (90) days prior to the expiration of the
Initial Term or the then current Renewal Term, as the case may be, the Company
and Employee mutually agree in writing to the contrary. Notwithstanding the
foregoing, however, the term of this Agreement is subject to earlier termination
as provided in Section 7 below.

      2. Title and Responsibilities. During the term of this Agreement, Employee
shall serve as Associate General Counsel of the Company. In the performance of
such duties Employee shall report directly to (and only to) the General Counsel,
Chief Operating Officer ("COO"), and the Chief Executive Officer of the Company
(the "CEO") and shall, subject to the reasonable supervision and control of the
General Counsel, COO and CEO, have the duties, responsibilities and authority
commensurate with such positions in companies comparable to the Company.
Employee's office location shall at all times be in offices of the Company
located in Orange County, California. Employee may be required to travel from
time to time to the extent reasonably necessary to the performance of his duties
hereunder.
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      Employee shall in good faith and consistent with his ability, experience
and talent perform the duties set forth in this Section 2, and shall devote
substantially all of his productive time and efforts to the performance of such
duties provided, however, that Employee may participate in civic, charitable,
and other not-for-profit activities and manage personal and family investments
to the extent that the same does not materially conflict with the discharge of
his duties hereunder.

      3. Compensation and Benefits. The Company shall pay and/or provide the
following compensation and benefits to Employee during the term hereof, and
Employee shall accept the same as payment in full for all services rendered by
Employee to or for the benefit of the Company:


            3.1 Base Salary. The Company shall pay Employee a salary of $130,000
per annum for the first twelve months of the term of this Agreement and $140,000
per annum for the second twelve months of the term (the "Base Salary").
Notwithstanding the foregoing, the Base Salary shall be subject to review from
time to time (not less frequently than at the end of each fiscal year of the
Company) and, as a result thereof, may be increased (but not decreased) at the
discretion of the CEO, COO and the Compensation Committee of the Company's Board
of Directors. In determining such increases in the Base Salary, if any, the CEO,
COO and the Compensation Committee of the Company's Board of Directors shall
take into account, among other things, the Company's achievement of the
objectives set forth in its business plan and the Company's results of
operations. The Base Salary shall be payable in accordance with the payroll
practices of the Company in effect from time to time.

            3.2 Bonus. Employee shall be entitled to a bonus to be granted on a
discretionary basis with all similar or like bonuses grants to other executives
of the Company.

            [3.3 Bonus Upon Change in Control of the Company. If during the term
of this Agreement there is a Change in Control (as defined below), then the
Company shall pay to Employee concurrently with such Change in Control, a cash
bonus in an amount equal to the sum of (a) three (3) times the Employee's then
current annual Base Salary; and (b) the amount of taxes payable by Employee
under Internal Revenue Code Section 280G with respect to the bonus contemplated
by this Section 3.3. The bonus contemplated by this Section 3.3 shall be paid to
Employee whether or not Employee elects to terminate this Agreement pursuant to
any of the terms of this Agreement.]*

      [For purposes of this Agreement, a "Change in Control" shall be deemed to
have occurred if (i) any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"))
other than a trustee or other fiduciary holding securities of the Company under
an employee benefit plan of the Company, becomes the "beneficial owner" (as
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing

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50% or more of (A) the outstanding shares of common stock of the Company, or (B)
the combined voting power of the Company's then outstanding securities entitled
to vote generally in the election of directors; (ii) during any period of not
more than two consecutive years, not including any period prior to the date of
this Agreement, individuals who at the beginning of such period constitute the
Board, and any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction described
in clause (iii) below) whose election by the Board or nomination by the
Company's shareholders was approved by a vote of at least a majority of the
directors still in office who either were in office at the beginning of such
period or whose election or nomination for election was previously so approved,
ceases for any reason to constitute a majority of the Board; or (ii) the Company
is a party to a merger consolidation which results in the holders of voting
securities of the Company outstanding immediately prior thereto failing to
continue to represent (either by remaining outstanding or 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, or the Company sells
or disposes of all or substantially all of the Company's assets or any
transaction having similar effect is consummated.]*

            3.4 Stock Option Plan. Concurrently herewith, the Company shall
grant to Employee stock options entitling Employee to purchase 200,000 shares of
the Company's common stock, with an exercise price of $7.75 per share (the
"Options"). The right to exercise the Options shall be vested as to 100,000
shares covered thereby immediately upon execution of this Agreement. The Options
shall vest as to an additional [50,000]* {25,000}# shares on each of December 1,
20002, [and]8 December 1, 2003{, December 1, 2004 and December 1, 2005}#[;
provided, however, that all Options under this Agreement shall vest in full
immediately prior to the consummation of any Change in Control.]* The Options
shall have a term of seven years (regardless of any termination of Employee's
employment). Employee shall be entitled to include the shares purchased or
purchasable upon exercise of the Options in any registration statement hereafter
filed by the Company under the Securities Act of 1933, as amended, on a basis
which is no less favorable to Employee than the basis on which any other
shareholder of the Company is entitled to include such shareholder's shares in
such registration statement.

            3.5 Other Fringe Benefits. Employee shall be entitled to participate
in all of the Company's incentive and benefit plans and arrangements, including,
without limitation, all bonus, compensation and other incentive and benefit
plans or arrangements made available now or in the future by the Company to it
senior executives, subject to an on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements, but on a
basis no less favorable than that afforded to any other director, officer or
employee of the Company. The Company shall also provide to Employee at the
Company's expense all health, medical, hospitalization, life and disability
insurance provided to other senior executives of the Company.

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            3.6 Expenses. The Company shall promptly reimburse Employee for all
out-of pocket expenses actually incurred by him in connection with the
performance of his duties hereunder, subject to Employee's furnishing the
Company with evidence in the form of receipts satisfactory to the Company
substantiating the claimed expenditures (such expenses being commensurate with
the office and executive position of Employee hereunder, and including first
class hotel and travel arrangements). Employee's right to be reimbursed for
expenses incurred prior to the termination of this Agreement shall survive
termination of this Agreement.

            3.7 Vacation. Employee shall be entitled to the number of paid
vacation days in each calendar year determined by the Board from time to time
for the Company's senior executive officers, but not less than 20 days in any
calendar year. Employee shall also be entitled to all paid holidays given to the
Company's senior executive officers.

            3.8 Automobile, Telephone, Etc. During the term hereof the Company
shall provide Employee $500 per month for the purposes of the Employee paying
for an automobile and related expenses. In addition, the Company shall provide a
cell phone and shall reimburse Employee for all charges incurred by him in
connection with the use thereof related to the performance of his duties
hereunder.

            3.9 Withholding and Other Deductions. All compensation payable to
Employee hereunder shall be subject to such deductions as the Company is from
time to time required to make pursuant to law, governmental regulation or order.


      4. Representations and Warranties. Employee represents and warrants to the
Company that (a) Employee is under no contractual or other restriction or
obligation which is inconsistent with the execution of this Agreement, the
performance of his duties hereunder, or the other rights of the Company
hereunder, and (b) Employee is under no physical or mental disability that would
hinder the performance of his duties under this Agreement. The Company
represents and warrants to Employee that (i) the execution and delivery of this
Agreement by the Company and the performance of its obligations hereunder have
been duly authorized by the Board and no further corporate action on the
Company's part is necessary to authorize this Agreement and the performance of
such obligations; and (ii) this Agreement constitutes the valid and binding
obligation of the Company, enforceable by Employee against the Company strictly
in accordance with its terms (subject to laws in effect with respect to
creditors' rights generally and applicable principles relating to equitable
remedies).

      5. Confidential Information. Employee acknowledges that the nature of
Employee's engagement by the Company is such that Employee will have access to
Confidential Information (as hereinafter defined) which has value to the
Company. During the term of this Agreement and at all times thereafter, Employee
shall keep all of the Confidential Information in confidence and shall not
disclose any of the same to any other person, except the Company's personnel
entitled thereto and other persons


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designated in writing by the Company or except as otherwise required by law.
Employee shall not use the confidential Information for Employee's personal gain
or benefit outside the scope of Employee's engagement by the Company. The term
"Confidential Information," as used herein, means all information or material
not generally known by non-Company personnel which (a) gives the Company some
competitive business advantage or the opportunity of obtaining such advantage or
the disclosure of which could be materially detrimental to the interests of the
Company; (b) which is owned by the Company or in which the Company has an
interest; and (c) which is either (i) marked "Confidential Information,"
"Proprietary Information" or other similar marking, (ii) known by Employee to be
considered confidential and proprietary by the Company, or (iii) form all the
relevant circumstances should reasonably be assumed by Employee to be
confidential and proprietary to the Company.

      6. "Key Man" Insurance. The Company shall have the right to purchase "key
man" life insurance covering Employee, in the name and for the benefit of the
Company and at the Company's expense. Employee shall cooperate in all reasonable
respects with the Company's efforts to obtain such insurance and shall submit to
any required medical or other examination; provided, however, that if such
medical or other examination cannot be conducted by Employee's personal
physician, then Employee shall have the right to have his personal physician
attend the examination. Upon the termination of his employment hereunder,
Employee may acquire any such life insurance policy upon paying the Company an
amount equal to the insurance policy's case surrender value, if any, at the time
of termination and reimbursing the Company for the pro rata portion of any
premium paid applicable to periods subsequent to the termination.

      7. Termination; Separation Compensation.


            7.1 Termination. Notwithstanding Section 1 above, Employee's
employment with the Company shall terminate upon the earliest to occur of any of
the following:


               (a) the death of Employee;

               (b) the "total disability" of Employee (as hereinafter defined);

               (c) the expiration of ten (10) days after the receipt by Employee
of written notice of termination executed by the Company if Employee shall make
any intentional material misrepresentation to the Company's Board of Directors,
commit any felony involving fraud, embezzlement, misappropriation or other
criminal act with respect to Company, and/or any affiliates thereof;

               (d) the expiration of one hundred eighty (180) days after receipt
by the Company of written notice of termination executed by Employee;



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               (e) the expiration of ten (10) days after receipt by the Company
of written notice of termination executed by Employee if, without Employee's
written consent, there shall have been any adverse change in Employee's status,
title, position, duties, responsibilities or authorities contemplated by this
Agreement; or

               (f) the expiration of ten (10) days after receipt by the Company
of written notice of termination executed by Employee if there shall have been a
material breach by the Company of any of its obligations under this Agreement,
which default is not cured within such ten day period.

            7.2 Definition of Total Disability. For purposes of this Agreement,
Employee shall be deemed to have suffered a "total disability" if he is unable
to perform substantially all of his duties theretofore performed by him under
this Agreement by reason of any medically determinable physical or mental
impairment which has lasted for not less than one hundred twenty (120)
consecutive calendar days or for one hundred fifty (150) calendar days (whether
or not consecutive) in any one hundred eighty (180) calendar days. Prior to
termination of this Agreement as a result of total disability, and
notwithstanding any failure or inability of Employee to render services
hereunder, the Company shall continue to pay and/or provide to Employee the
compensation and benefits specified in Section 3 hereof.

            7.3 Separation Compensation. If Employee's employment terminates
pursuant to Section 7.1(a), (b), (c), or of this Agreement, Employee shall be
entitled to receive the Base Salary and other compensation and benefits provided
for under this Agreement through the date of termination, but shall not be
entitled to receive any severance pay or non-vested employment benefits or
options, or any other termination benefits, except to the extent otherwise
required to be paid under applicable California law. If Employee's employment
terminates for any reason other than pursuant to the provisions of this
Agreement referred to in the immediately preceding sentence, then Employee shall
be entitled to receive (i) the Base Salary and other compensation and benefits
provided for under this Agreement through the date of termination and (ii) an
amount equal to three times Employee's then current annual Base Salary. The
amount specified in clause (ii) above shall be payable immediately in cash
commencing immediately following the termination of Employee's employment. The
Company and Employee both agree that the amount of the severance payment
specified in the immediately preceding sentence is reasonable under the
circumstances existing at the time of the execution of this Agreement.

            7.4 Mitigation. Employee shall not be required to mitigate the
amount of any payment provided for in this Section 7 by seeking other employment
or otherwise, and the amount of any payment or benefit provided in this Section
7 shall not be reduced by any compensation earned by Employee as a result of
employment by another employer or by any other benefits.

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      8. General Relationship. Employee shall be considered an employee of the
Company within the meaning of all federal, state and local laws and regulations
including, but not limited to, laws and regulations governing unemployment
insurance, workers' compensation, industrial accident, labor and taxes.


      9. Indemnification Agreement. As a material inducement to Employee to
execute and deliver this Agreement, concurrently with the execution and delivery
of this Agreement, the Company and Employee have executed and delivered an
Indemnification Agreement in the form attached to this Agreement as Exhibit A.


      10. Miscellaneous.


            10.1 Entire Agreement. This Agreement sets forth the entire
understanding of the parties with respect to the subject matter hereof,
supersedes all existing agreements between them concerning such subject matter,
and may be modified only by a written instrument duly executed by each party.


            10.2 No Assignment. This Agreement may not be assigned by the
Company or Employee without the prior written consent of the other (which
consent may be granted or withheld by such party in its sole and absolute
discretion), and any attempt to assign rights and duties without such written
consent shall be null and void and of no force and effect. Subject to the
preceding sentence, this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and assigns.

            10.3 Survival. The covenants, agreements, representations and
warranties contained in or made pursuant to this Agreement shall survive
Employee's termination of employment, irrespective of any investigation made by
or on behalf of any party.


            10.4 Third Party Beneficiaries. This Agreement does not create, and
shall not be construed as creating, any rights enforceable by any person not a
party to this Agreement.


            10.5 Waiver. The failure of either party hereto at any time to
enforce performance by the other party of any provision of this Agreement shall
in no way affect such party's rights thereafter to enforce the same, nor shall
the waiver by either party of any breach of any provision hereof be deemed to be
a waiver by such party of any other breach of the same or any other provision
hereof.

            10.6 Section Headings. The headings of the several sections of this
Agreement are inserted solely for the convenience of the parties and are not a
part of and are not intended to govern, limit or add in the construction of any
term or provision hereof.





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            10.7 Notices. all notices and other communications required or
permitted under this Agreement shall be in writing, served personally or,
telecopied, sent by courier or other express private mail service, or mailed by
certified, registered or express United States mail postage prepaid, and shall
be deemed given upon receipt if delivered personally, telecopied or sent by
courier or other express private mail service, or if mailed when actually
received as shown on the return receipt. Notices shall be addressed as follows:

               (a) If to the Company, to:

                   Commonwealth Energy Corporation
                   15901 Read Hill Avenue, Suite 100
                   Tustin, CA 92780


               (b) If to Employee, to:

                   Michael G. Nelson
                   P.O. Box 1282
                   Tustin, CA 92781

      Either party may change its address for purposes of this Section by giving
to the other, in the manner provided herein, a written notice of such change.

            10.8 Severability. All sections, clauses and covenants contained in
this Agreement are severable, and in the event any of them shall be held to be
invalid in any court, this Agreement shall be interpreted as if such invalid
sections, clauses or covenants were not contained herein.


            10.9 Applicable Law. This Agreement is made with reference to the
laws of the State of California, shall be governed by and construed in
accordance therewith, and any court action brought under or arising out of this
Agreement shall be brought in any competent court within the State of
California, County of Orange.


            10.10 Attorneys' Fees. If any legal action, arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of any
alleged dispute, breach, default or misrepresentation in connection with this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs it incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.

            10.11 Gender. Where the context so requires, the use of the
masculine gender shall include the feminine and/or neuter genders and the
singular shall include the plural, and vice verse, and the work "person" shall
include any corporation, firm, partnership or other form of association.




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            10.12 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.


      IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date hereinabove set forth.

Commonwealth Energy Corporation

By: /S/ IAN B. CARTER                                     /S/MICHAEL G. NELSON
    --------------------------                            --------------------
    Ian B. Carter                                         Michael G. Nelson
    Chief Executive Officer


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