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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended January 31, 2006
 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(Address of principal executive offices)
    
    92626(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)
 þ o
  o o þ
 o þ




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##### 



COMMERCE ENERGY GROUP, INC.
 Form 10-Q
For the Period Ended January 31, 2006
Index
 PagePart I 
    
    Financial Information
    
    
    2Item 1.
    
    Financial Statements:
    
    
    2Condensed Consolidated Statements of Operations for the three and six months ended
January 31, 2006 and January 31, 2005
    
    
    2Condensed Consolidated Balance Sheets as of January 31, 2006 and July 31, 2005
    
    
    3Condensed Consolidated Statements of Cash Flows for the six months ended January 31,
2006 and January 31, 2005
    
    
    4Notes to Condensed Consolidated Financial Statements
    
    
    5Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    29Item 4.
    
    Controls and Procedures
    
    
    30Part II 
    
    Other Information
    
    
    30Item 1.
    
    Legal Proceedings
    
    
    30Item 1A.
    
    Risk Factors
    
    
    30Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    32Item 5.
    
    Other Information
    
    
    32Item 6.
    
    Exhibits
    
    
    33Signatures
    
    
    
    
    36EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2EXHIBIT 99.1
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FORWARD-LOOKING INFORMATION
    
    
    regulatory changes in the states in which we operate that could adversely affect our operations;
    
    our continued ability to obtain and maintain licenses from the states in which we operate;
    
    changes in the restructuring of retail markets which could prevent us from selling
electricity and natural gas on a competitive basis;
    
    our dependence upon a limited number of third-party suppliers of electricity and
natural gas;
    
    our dependence upon a limited number of local electric and natural gas utilities to
transmit and distribute the energy we sell to our customers, and to accurately meter and
bill for the energy we supply our customers;
    
    fluctuations in market prices for electricity and natural gas;
    
    our ability to accurately forecast the expected energy needs of our electricity and natural gas customers;
    
    decisions by electricity and natural gas utilities not to raise their rates to
reflect higher market cost of electricity and natural gas, thereby adversely affecting our
competitiveness;
    
    our ability to successfully compete in new electricity and natural gas markets that we enter;
    
    decisions by our energy suppliers to require us to post additional collateral to support our energy purchases;
    
    our ability to obtain and retain credit necessary to support both current operations and future growth;
    
    our ability to successfully integrate businesses we may acquire;
    
    seasonal weather or force majeure events that adversely impact electricity and
natural gas supply and infrastructure and which could prevent us from
competitively servicing the demand requirements of our customers; and
    
    our dependence upon independent system operators, regional transmission
organizations, natural gas transmission companies, and local distribution
companies to properly coordinate and manage their transmission grids and
distribution networks, and to accurately and timely calculate and allocate the cost
of services to market participants.
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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
    
    
    Six Months EndedJanuary 31,
    
    
    January 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Net revenue
    
    $
    72,654
    
    
    $
    61,048
    
    
    $
    137,022
    
    
    $
    119,545Direct energy costs
    
    
    68,892
    
    
    
    52,639
    
    
    
    125,020
    
    
    
    103,975Gross profit
    
    
    3,762
    
    
    
    8,409
    
    
    
    12,002
    
    
    
    15,570Selling and marketing expenses
    
    
    1,228
    
    
    
    761
    
    
    
    1,926
    
    
    
    1,715General and administrative expenses
    
    
    6,847
    
    
    
    10,043
    
    
    
    14,456
    
    
    
    15,050Loss from operations
    
    
    (4,313
    )
    
    
    (2,395
    )
    
    
    (4,380
    )
    
    
    (1,195
    )Other income and expenses:Initial formation litigation expenses
    
    
    
    
    
    
    (162
    )
    
    
    
    
    
    
    (1,601
    )Interest income, net
    
    
    201
    
    
    
    215
    
    
    
    488
    
    
    
    406Net loss
    
    $
    (4,112
    )
    
    $
    (2,342
    )
    
    $
    (3,892
    )
    
    $
    (2,390
    )Loss per common share:Basic and diluted
    
    $
    (0.13
    )
    
    $
    (0.08
    )
    
    $
    (0.13
    )
    
    $
    (0.08
    )
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COMMERCE ENERGY GROUP, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (In thousands, except per share amounts)
 January 31, 2006
    
    
    July 31, 2005(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    13,380
    
    
    $
    33,344Accounts receivable, net
    
    
    38,111
    
    
    
    27,843Inventory
    
    
    4,079
    
    
    
    4,561Prepaid expenses and other
    
    
    8,394
    
    
    
    3,542Total current assets
    
    
    63,964
    
    
    
    69,290Restricted cash and cash equivalents
    
    
    10,479
    
    
    
    8,222Deposits
    
    
    9,939
    
    
    
    11,347Investments
    
    
    91
    
    
    
    91Property and equipment, net
    
    
    2,857
    
    
    
    2,007Goodwill
    
    
    6,801
    
    
    
    6,801Other intangible assets
    
    
    4,348
    
    
    
    4,874Total assets
    
    $
    98,479
    
    
    $
    102,632LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    23,230
    
    
    $
    25,625Accrued liabilities
    
    
    11,966
    
    
    
    6,946Total current liabilities
    
    
    35,196
    
    
    
    32,571Commitments and contingencies [see Note 6]
    
    
    
    
    
    
    Stockholders equity:Common stock  150,000 shares authorized with
$0.001 par value; 31,436 shares issued
and outstanding at July 31, 2005 and 30,322
(unaudited) at January 31, 2006
    
    
    60,928
    
    
    
    62,609Share-based compensation
    
    
    (183
    )
    
    
    Other comprehensive loss
    
    
    (1,022
    )
    
    
    Retained earnings
    
    
    3,560
    
    
    
    7,452Total stockholders equity
    
    
    63,283
    
    
    
    70,061Total liabilities and stockholders equity
    
    $
    98,479
    
    
    $
    102,632
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COMMERCE ENERGY GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands)
 (Unaudited)
 Six Months EndedJanuary 31,2006
    
    
    2005Cash Flows From Operating ActivitiesNet loss
    
    $
    (3,892
    )
    
    $
    (2,390
    )Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
    
    
    544
    
    
    
    683Amortization
    
    
    553
    
    
    
    336Provision for doubtful accounts
    
    
    (268
    )
    
    
    1,318Impairment of Summit investments
    
    
    
    
    
    
    5Stock-based compensation expense
    
    
    863
    
    
    
    48Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (10,000
    )
    
    
    (2,402
    )Inventory
    
    
    482
    
    
    
    Prepaid expenses and other assets
    
    
    (3,471
    )
    
    
    1,992Accounts payable
    
    
    (2,395
    )
    
    
    (7,325
    )Accrued liabilities and other
    
    
    3,998
    
    
    
    4,505Net cash used in operating activities
    
    
    (13,586
    )
    
    
    (3,230
    )Cash Flows From Investing ActivitiesPurchase of property and equipment
    
    
    (1,394
    )
    
    
    (325
    )Net cash used in investing activities
    
    
    (1,394
    )
    
    
    (325
    )Cash Flows From Financing ActivitiesProceeds from exercise of stock
    
    
    
    
    
    
    50Cancellation of common stock
    
    
    
    
    
    
    (252
    )Issuance of restricted stock
    
    
    (523
    )
    
    
    Repurchase of stock
    
    
    (2,204
    )
    
    
    Increase in restricted cash and cash equivalents
    
    
    (2,257
    )
    
    
    (325
    )Net cash used in financing activities
    
    
    (4,984
    )
    
    
    (527
    )Decrease in cash and cash equivalents
    
    
    (19,964
    )
    
    
    (4,082
    )Cash and cash equivalents at beginning of period
    
    
    33,344
    
    
    
    54,065Cash and cash equivalents at end of period
    
    $
    13,380
    
    
    $
    49,983
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COMMERCE ENERGY GROUP, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars in thousands, except per share amounts)
 (Unaudited)
 1. Summary of Significant Accounting Policies
 Basis of Presentation
  Preparation of Interim Condensed Consolidated Financial Statements
  Uses of Estimates
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COMMERCE ENERGY GROUP, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars in thousands, except per share amounts)  (Unaudited)
 Revenue Recognition
  Three Months Ended
    
    
    Six Months EndedJanuary 31,
    
    
    January 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Retail electricity sales
    
    $
    44,352
    
    
    $
    44,807
    
    
    $
    94,442
    
    
    $
    97,499Excess electricity sales
    
    
    1,540
    
    
    
    16,241
    
    
    
    6,889
    
    
    
    22,046Total electricity sales
    
    
    45,892
    
    
    
    61,048
    
    
    
    101,331
    
    
    
    119,545Retail natural gas sales
    
    
    26,762
    
    
    
    
    
    
    
    35,691
    
    
    
    Net revenue
    
    $
    72,654
    
    
    $
    61,048
    
    
    $
    137,022
    
    
    $
    119,545
   Stock-Based Compensation
 Share-Based Payments Accounting for Stock-Based Compensation Accounting for
Stock Issued to Employees.
  Six Months EndedJanuary 31,2006
    
    
    2005Weighted-average risk-free interest rate
    
    
    4.12
    %
    
    
    4.0
    %Average expected life in years
    
    
    5.28
    
    
    
    6.0Expected dividends
    
    None
    
    NoneExpected Volatility
    
    
    0.7773
    
    
    
    0.7773
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COMMERCE ENERGY GROUP, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars in thousands, except per share amounts)  (Unaudited)
  Options OutstandingWeighted-Weighted
    
    
    AverageNumber of
    
    
    
    
    
    
    Average
    
    
    Fair ValueShares (in
    
    
    Exercise Price
    
    
    Exercise
    
    
    of CommonThousands)
    
    
    Per Share
    
    
    Price
    
    
    StockBalance at October 31, 2005
    
    
    9,135
    
    
    $
    0.05-$3.75
    
    
    $
    2.23Options granted (1)
    
    
    120
    
    
    $
    1.68
    
    
    $
    1.68
    
    
    $
    1.68Options cancelled (2)
    
    
    (1,233
    )
    
    $
    1.92
    
    
    $
    1.92Balance at January 31, 2006 (3)
    
    
    8,022
    
    
    $
    0.05-$3.75
    
    
    $
    2.27
 
 (1)
    
    Options were granted with exercise prices greater than the fair value of the Companys common
stock at the respective dates of grant.(2)
    
    See Note 8 on cancellation of former officers options.(3)
    
    Options exercisable as of January 31, 2006 were 7,652 with a weighted average exercise price
of $2.29.   Accounting for Stock Issued to
Employees Accounting for
Stock-Based Compensation,
 Amended and Restated 2005 Employee Stock Purchase Plan
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COMMERCE ENERGY GROUP, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars in thousands, except per share amounts)  (Unaudited)
 2006 Stock Incentive Plan
  Income Tax
  Other Comprehensive Income (Loss)
  Segment Reporting
  Accounts Receivable, Net
  January 31,
    
    
    July 31,2006
    
    
    2005Billed
    
    $
    29,074
    
    
    $
    22,017Unbilled
    
    
    14,267
    
    
    
    11,324$
    43,341
    
    
    $
    33,341Less allowance for doubtful accounts
    
    
    (5,230
    )
    
    
    (5,498
    )Accounts receivable, net
    
    $
    38,111
    
    
    $
    27,843
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COMMERCE ENERGY GROUP, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars in thousands, except per share amounts)  (Unaudited)
 Inventory
  2. Basic and Diluted Loss per Common Share
   Three Months Ended
    
    
    Six Months EndedJanuary 31,
    
    
    January 31,2006
    
    
    2005
    
    
    2006
    
    
    2005Numerator:Net loss
    
    $
    (4,112
    )
    
    $
    (2,342
    )
    
    $
    (3,892
    )
    
    $
    (2,390
    )Net loss
applicable to
common stock basic
and diluted
    
    $
    (4,112
    )
    
    $
    (2,342
    )
    
    $
    (3,892
    )
    
    $
    (2,390
    )
 Three Months Ended
    
    
    Six Months EndedJanuary 31,
    
    
    January 31,(in thousands)
    
    
    (in thousands)2006
    
    
    2005
    
    
    2006
    
    
    2005Denominator:Weighted-average outstanding common shares 
basic
    
    
    30,464
    
    
    
    30,534
    
    
    
    30,881
    
    
    
    30,528Effect of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted-average outstanding common shares 
diluted
    
    
    30,464
    
    
    
    30,534
    
    
    
    30,881
    
    
    
    30,528
  3. Market and Regulatory
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COMMERCE ENERGY GROUP, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars in thousands, except per share amounts)  (Unaudited)
 Electricity
        Natural Gas
  4. Investments
  10




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COMMERCE ENERGY GROUP, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars in thousands, except per share amounts)  (Unaudited)
  5. Acquisitions
     6. Contingencies
 Litigation
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COMMERCE ENERGY GROUP, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars in thousands, except per share amounts)
 7. Derivative Financial Instruments
      January 31,
    
    
    July 31,2006
    
    
    2005Current assets
    
    $
    396
    
    
    $
    Current liabilities
    
    
    (1,809
    )
    
    
    Deferred gains
    
    
    391
    
    
    
    Other comprehensive loss
    
    $
    (1,022
    )
    
    $
    
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COMMERCE ENERGY GROUP, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Dollars in thousands, except per share amounts)  (Unaudited)
  8. Settlement Agreements with Former Officers
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 Overview
      Acquisitions
 ACN Energy Transaction
   14




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Investments
   Market and Regulatory
  Electricity
     15




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Natural Gas
  Critical Accounting Policies and Estimates
  
    
    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, or SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities. 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 is recorded as direct
energy costs concurrently.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 has not been available in our Pennsylvania market, or the
PJM-ISO through January 31, 2006. Accordingly, we designate forward physical delivery
contracts entered into for the PJM-ISO, and certain other forward fixed price purchases and
financial derivatives as cash flow hedges, whereby mark-to-market accounting gains or
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losses are deferred and reported as a component of Other Comprehensive Income (Loss) until
the time of physical delivery and the fair value of the contracts 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 Other Comprehensive Income
(Loss) and subsequently reclassified to direct energy cost in our consolidated Statement of
Operations as the power is delivered. To the extent that the hedges are not effective, the
ineffective portion of the changes in fair market value is recorded currently in direct
energy costs. We intend to continue to 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. Additionally, we utilize cash flow hedge accounting, where appropriate.
We anticipated the normal purchase and normal sale exception will again be available to us in
the third quarter of fiscal 2006.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 sales accounting treatment or cash flow
hedge accounting are recorded in operating income (loss) and as a current or long-term
derivative asset or liability. 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.We determined that our documentation during fiscal 2005 was inadequate for the contracts that
were designated for cash flow hedge accounting treatment pursuant to the provisions of SFAS
No. 133, resulting in current period mark-to-market accounting for all of our electricity
forward physical contracts and financial derivatives which had previously been designated as
cash flow hedges in fiscal 2005.
    
    Independent System Operator Costs Included in direct energy costs, along with
electricity that we purchase, are scheduling coordination costs, certain real-time net
power purchase and sale cost, and other ISO fees and charges. The actual ISO costs are not
finalized until a settlement process by the ISO is performed for each days activities for
all grid participants. Prior to the completion of settlement (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 costs resulting in the need to adjust the previous estimates.
    
    Transportation and Delivery Costs Included in direct energy costs, along with natural
gas that we purchase, are interstate pipeline costs and utility service charges. These fees
are recognized in the month incurred and settled in the following month.
    
    Allowance for Doubtful Accounts We maintain allowances for doubtful accounts for
estimated losses resulting from non-payment of customer billings. If the financial
condition of our customers were to deteriorate, resulting in an impairment of their ability
to make payments, additional allowances may be required.
    
    Unbilled Receivables Our customers are billed monthly during the month on a
sequential basis or on a meter read cycle. Unbilled receivables represent the amount of
electricity and natural gas delivered to customers through the end of each reporting
period, but not yet billed. Unbilled receivables from sales are estimated by us to be the
number of kilowatt-hours or dekatherms delivered, but not yet billed, multiplied by the
current average sales price per kilowatt-hour or dekatherms as applicable.
    
    Inventory Inventory represents natural gas in storage as required by state regulatory
bodies and contractual obligations under customer choice programs. Inventory is stated at
the lower of average cost or market.
    
    Legal Matters From time to time, we may be involved in litigation matters. 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 SFAS No.
5, Accounting for Contingencies. As additional information
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about current or future litigation or other contingencies becomes available, management
assesses whether such information warrants the recording of additional expense. Such
additional expense could potentially have a material adverse impact on our results of
operations and financial position. On February 24, 2006, we received a Demand for Arbitration
relating to the Sales Agency Agreement between American Communications Network, or ACN, and
Commerce Energy, Inc. alleging the Commerce is liable for actual, consequential, restitution
and punitive damages on a variety of causes of actions with respect to alleged future
commissions arising after the termination of the Sales Agency Agreement by ACN. At this time,
management believes that no accrual for this matter is warranted. See Factors That May
Affect Future Results  Our results of operations and financial condition could be affected
by pending and future litigation.
 Results of Operations
  Three Months Ended January 31, 2006 Compared to Three Months Ended January 31, 2005
  Three Months Ended January 31,2006
    
    
    2005Dollars
    
    
    % Revenue
    
    
    Dollars
    
    
    % RevenueRetail electricity sales
    
    $
    44,134
    
    
    
    61
    %
    
    $
    44,213
    
    
    
    73
    %Natural gas sales
    
    
    26,762
    
    
    
    37
    %
    
    
    
    
    
    
    Excess electricity sales
    
    
    1,540
    
    
    
    2
    %
    
    
    16,241
    
    
    
    26
    %Other
    
    
    218
    
    
    
    
    
    
    
    594
    
    
    
    1
    %Net revenue
    
    
    72,654
    
    
    
    100
    %
    
    
    61,048
    
    
    
    100
    %Direct energy costs
    
    
    68,892
    
    
    
    95
    %
    
    
    52,639
    
    
    
    86
    %Gross profit
    
    
    3,762
    
    
    
    5
    %
    
    
    8,409
    
    
    
    14
    %Selling and marketing expenses
    
    
    1,228
    
    
    
    2
    %
    
    
    761
    
    
    
    1
    %General and administrative expenses
    
    
    6,847
    
    
    
    9
    %
    
    
    10,043
    
    
    
    17
    %Loss from operations
    
    $
    (4,313
    )
    
    
    (6
    %)
    
    $
    (2,395
    )
    
    
    (4
    %)
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Net revenue
  Three Months Ended January 31,2006
    
    
    2005Dollars
    
    
    % Revenue
    
    
    Dollars
    
    
    % RevenueRetail Electricity Sales:California
    
    $
    16,405
    
    
    
    23
    %
    
    $
    14,287
    
    
    
    23
    %Pennsylvania/New Jersey
    
    
    17,223
    
    
    
    24
    %
    
    
    18,565
    
    
    
    30
    %Michigan
    
    
    6,740
    
    
    
    9
    %
    
    
    11,361
    
    
    
    19
    %All Other States, principally Texas
    
    
    3,766
    
    
    
    5
    %
    
    
    
    
    
    
    Total Retail Electricity Sales
    
    
    44,134
    
    
    
    61
    %
    
    
    44,213
    
    
    
    72
    %Natural Gas Sales:California
    
    
    8,568
    
    
    
    12
    %
    
    
    
    
    
    
    Ohio
    
    
    11,312
    
    
    
    16
    %
    
    
    
    
    
    
    Georgia
    
    
    3,943
    
    
    
    5
    %
    
    
    
    
    
    
    All Other States
    
    
    2,939
    
    
    
    4
    %
    
    
    
    
    
    
    Total Natural Gas Sales
    
    
    26,762
    
    
    
    37
    %
    
    
    
    
    
    
    Excess Electricity Sales
    
    
    1,540
    
    
    
    2
    %
    
    
    16,241
    
    
    
    27
    %Other
    
    
    218
    
    
    
    
    
    
    
    594
    
    
    
    1
    %Net Revenue
    
    $
    72,654
    
    
    
    100
    %
    
    $
    61,048
    
    
    
    100
    %
     19




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##### Table of Contents



Direct Energy Costs
    Operating Expenses
  Initial Formation Litigation Expenses
  Benefit from Income Taxes
  20




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##### Table of Contents



Six Months Ended January 31, 2006 Compared to Six Months Ended January 31, 2005
  Six Months Ended January 31,2006
    
    
    2005Dollars
    
    
    % Revenue
    
    
    Dollars
    
    
    % RevenueRetail electricity sales
    
    $
    93,776
    
    
    
    68
    %
    
    $
    96,304
    
    
    
    81
    %Natural gas sales
    
    
    35,691
    
    
    
    26
    %
    
    
    
    
    
    
    Excess electricity sales
    
    
    6,889
    
    
    
    5
    %
    
    
    22,046
    
    
    
    18
    %Other
    
    
    666
    
    
    
    1
    %
    
    
    1,195
    
    
    
    1
    %Net revenue
    
    
    137,022
    
    
    
    100
    %
    
    
    119,545
    
    
    
    100
    %Direct energy costs
    
    
    125,020
    
    
    
    91
    %
    
    
    103,975
    
    
    
    87
    %Gross profit
    
    
    12,002
    
    
    
    9
    %
    
    
    15,570
    
    
    
    13
    %Selling and marketing expenses
    
    
    1,926
    
    
    
    1
    %
    
    
    1,715
    
    
    
    1
    %General and administrative expenses
    
    
    14,456
    
    
    
    11
    %
    
    
    15,050
    
    
    
    13
    %Loss from operations
    
    $
    (4,380
    )
    
    
    (3
    %)
    
    $
    (1,195
    )
    
    
    (1
    %)
  Net Revenue
  Six Months Ended January 31,2006
    
    
    2005Dollars
    
    
    % Revenue
    
    
    Dollars
    
    
    % RevenueRetail Electricity Sales:California
    
    $
    34,089
    
    
    
    25
    %
    
    $
    33,075
    
    
    
    28
    %Pennsylvania/New Jersey
    
    
    35,135
    
    
    
    25
    %
    
    
    39,893
    
    
    
    33
    %Michigan
    
    
    14,589
    
    
    
    11
    %
    
    
    23,336
    
    
    
    20
    %All Other States, principally Texas
    
    
    9,963
    
    
    
    7
    %
    
    
    
    
    
    
    Total Retail Electricity Sales
    
    $
    93,776
    
    
    
    68
    %
    
    $
    96,304
    
    
    
    81
    %Natural Gas Sales:California
    
    
    12,994
    
    
    
    9
    %
    
    
    
    
    
    
    Ohio
    
    
    13,934
    
    
    
    10
    %
    
    
    
    
    
    
    Georgia
    
    
    5,107
    
    
    
    4
    %
    
    
    
    
    
    
    All Other States
    
    
    3,656
    
    
    
    3
    %
    
    
    
    
    
    
    Total Natural Gas Sales
    
    
    35,691
    
    
    
    26
    %
    
    
    
    
    
    
    Excess Electricity Sales
    
    
    6,889
    
    
    
    5
    %
    
    
    22,046
    
    
    
    18
    %Other
    
    
    666
    
    
    
    1
    %
    
    
    1,195
    
    
    
    1
    %Net Revenue
    
    $
    137,022
    
    
    
    100
    %
    
    $
    119,545
    
    
    
    100
    %
  21




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##### Table of Contents



Direct Energy Costs
    Operating Expenses
  22




---



##### Table of Contents



Initial Formation Litigation Expenses
  Benefit from Income Taxes
  Liquidity and Capital Resources
      Contractual Obligations
  23




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##### Table of Contents



Factors That May Affect Future Results
 If competitive restructuring of the retail energy market is delayed or does not result in viable
competitive market rules, our business will be adversely affected.
     We face many uncertainties that may cause substantial operating losses and we cannot assure
stockholders that we can achieve and maintain profitability.
  
    
    our ability to attract and to retain a critical mass of customers at a reasonable cost;
    
    our ability to continue to develop and maintain internal corporate organization and systems;
    
    the continued competitive restructuring of retail energy markets with viable competitive market rules;
 24




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##### Table of Contents




    
    our ability to effectively manage our energy procurement and shaping requirements, and
to sell our energy at a sufficient profit margin; and
    
    our ability to obtain and retain necessary credit necessary to support future growth
and profitability.
 We may have difficulty obtaining a sufficient number of customers.
   We depend upon internally developed, and, in the future will rely on vendor-developed, systems and
processes to provide several critical functions for our business, and the loss of these functions
could materially adversely impact our business.
  Substantial fluctuations in electricity and natural gas prices or the cost of transmitting and
distributing electricity and natural gas could have a material adverse affect on us.
   25




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##### Table of Contents



If our net worth declines, our energy suppliers who extend credit to us may demand that we
pledge additional cash or other collateral to support extensions of credit to us, which could
adversely affect our liquidity and our operations.
  We do not utilize bank lines of credit at this time and may have limited access to additional
credit from banks and commodity suppliers.
  If the wholesale price of electricity decreases, we may be required to post letters of credit for
margin to secure our obligations under our long term energy contracts.
  Some suppliers of electricity have been experiencing deteriorating credit quality.
  We are required to rely on utilities with whom we compete to perform some functions for our
customers.
   We are required to rely on utilities with whom we compete to provide us accurate and timely data.
 26




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##### Table of Contents



We are subject to federal and state regulations in our electricity and natural gas marketing
business and the rules and regulations of regional Independent System Operators, or ISOs, in our
electricity business.
    In some markets, we are required to bear credit risk and billing responsibility for our customers.
  Our revenues and results of operations are subject to market risks that are beyond our control.
   
    
    weather conditions, including hydrological conditions such as precipitation, snow pack and stream flow;
    
    seasonality;
    
    unexpected changes in customer usage;
 27




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##### Table of Contents




    
    transmission or transportation constraints or inefficiencies;
    
    planned and unplanned plant or transmission line outages;
    
    demand for electricity;
    
    natural gas, crude oil and refined products, and coal supply availability to generators
from whom we purchase electricity; natural disasters, wars, embargoes and other
catastrophic events; and
    
    federal, state and foreign energy and environmental regulation and legislation.
 We may experience difficulty in successfully integrating and managing acquired businesses and in
realizing anticipated economic, operational and other benefits in a timely manner
  If we fail to maintain an effective system of internal controls, we may not be able to accurately
report our financial results or prevent fraud. As a result, current and potential stockholders
could lose confidence in our financial reporting which would harm our business and the trading
price of our stock.
   28




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##### Table of Contents



Investor confidence and share value may be adversely impacted if our independent auditors are
unable to provide us with the attestation of the adequacy of our internal controls over financial
reporting as of July 31, 2007, as applicable, as required by Section 404 of the Sarbanes-Oxley Act
of 2002.
   Our results of operations and financial condition could be affected by pending and future
litigation.
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
   29




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##### Table of Contents



Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  
 PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 Item 1A. Risk Factors.
  30




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Stock Repurchases
  Issuer Purchases of Equity Securities
 (a)
    
    (b)
    
    (c)
    
    (d)MaximumNumber (orApproximateDollarValue) ofTotal Number
    
    Shares (orof Shares
    
    Units) thatAverage
    
    (or Units)
    
    may yet bePrice
    
    Purchased as
    
    PurchasedTotal Number of
    
    Paid per
    
    Part of Publicly
    
    Under theShares (or Units)
    
    Share
    
    Announced Plans
    
    Plans orPeriod
    
    Purchased(1)(2)(3)
    
    (or Unit)
    
    or Programs
    
    ProgramsNovember 1  30, 2005
    
    
    1,589,405
    
    
    
    1.50
    
    
    
    
    December 1  31, 2005
    
    
    
    
    
    
    
    
    
    
    
    January 1  31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Pursuant to Settlement Agreement and General Release Agreements dated November 17, 2005
entered into separately with each of Peter Weigand and Richard Boughrum, the Company
repurchased 994,479 and 300,000 shares of the Companys common stock from Messrs. Weigand
and Boughrum, respectively, for a price of $1.50 per share. Each Settlement and General
Release Agreement became effective on November 25, 2005. In each case, one-half of the
purchase price was paid on November 28, 2005 and the remaining half is being paid pursuant
to a promissory note paid in five equal monthly installments
commencing in December 2005. In addition, pursuant to the
respective Settlement Agreements, Mr. Weigands and Mr.
Boughrums options to purchase common stock of the Company, 1,100,000 in the aggregate, were cancelled.(2)
    
    In connection with his Settlement Agreement and General Release entered into on
November 17, 2005, Mr. Weigand sold an aggregate of 120,000 shares of the Companys common
stock to two independent directors of the Company, 100,000 shares to Mr. Charles E. Bayless
for $1.50 per share and 20,000 shares to Mr. Mark Juergensen for $1.50 per share. Messrs.
Bayless and Juergensen each paid the full purchase price in their transaction with Mr.
Weigand on November 28, 2005.(3)
    
    Pursuant to a Settlement Agreement and General Release Agreement dated November 17,
2005 entered into by and among the Company, its wholly-owned subsidiary, Commerce Energy,
Inc. and Eric Alam, the Company repurchased 174,926 shares of the Companys common stock
from Mr. Alam for a price of $1.50 per share. Mr. Alam was paid one-half of the purchase
price on November 28, 2005 and the remainder on
February 27, 2006. In addition, pursuant to the Settlement
Agreement, all of Mr. Alams options to purchase common stock of the Company, 133,333 in the aggregate, were cancelled. 31




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##### Table of Contents



Item 4. Submission of Matters to a Vote of Security Holders.
  
 Item 5. Other Information
  32




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##### Table of Contents



Item 6. Exhibits.
  ExhibitNumber
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of Commerce Energy Group, Inc.,
previously filed with the Commission 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 Commission 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
Commission 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.
 Material Contracts Relating to Management Compensation Plans or Arrangements
 ExhibitNumber
    
    Description10.1
    
    Settlement Agreement and General Release dated November 17, 2005 by and among Peter T.
Weigand, Commerce Energy Group, Inc. and Commerce Energy, Inc., previously filed with
the Commission on November 23, 2005 as Exhibit 99.1 to Commerce Energy Group, Inc.s
Current Report on Form 8-K and incorporated herein by reference.10.2
    
    Promissory Note dated November 17, 2005 by and between Commerce Energy Group, Inc. and
Peter T. Weigand, previously filed with the Commission on November 23, 2005 as Exhibit
99.2 to Commerce Energy Group, Inc.s Current Report on Form 8-K and incorporated herein
by reference.10.3
    
    Voting and Standstill Agreement dated November 17, 2005, by and between Commerce Energy
Group, Inc. and Peter T. Weigand, previously filed with the Commission on November 23,
2005 as Exhibit 99.3 to Commerce Energy Group, Inc.s Current Report on Form 8-K and
incorporated herein by reference.10.4
    
    Amendment No. 1 to Executive Employment Agreement dated November 17, 2005, by and among
Commerce Energy Group, Inc., Commerce Energy, Inc. and Peter T. Weigand, previously
filed with the Commission on November 23, 2005 as Exhibit 99.4 to Commerce Energy Group,
Inc.s Current Report on Form 8-K and incorporated herein by reference.10.5
    
    Amendment No. 1 to Agreement Not to Engage in Prohibited Activities dated November 17,
2005 by and among Commerce Energy Group, Inc., Commerce Energy, Inc. and Peter T.
Weigand, previously filed with the Commission on November 23, 2005 as Exhibit 99.5 to
Commerce Energy Group, Inc.s Current Report on Form 8-K and incorporated herein by
reference.10.6
    
    Amendment No. 1 to Agreement Not to Compete dated November 17, 2005 by and among
Commerce Energy Group, Inc., Commerce Energy, Inc. and Peter T. Weigand, previously
filed with the Commission on November 23, 2005 as Exhibit 99.6 to Commerce Energy Group,
Inc.s Current Report on Form 8-K and incorporated herein by reference.10.7
    
    Agreement and Release dated November 17, 2005, by and among, Commerce Energy Group,
Inc., Commerce Energy, Inc., Paul, Hastings, Janofsky & Walker LLP, Eric G. Alam, Bruno
R. Kvetinskas, Greg M. Lander and Peter T. Weigand, previously filed with the Commission
on November 23, 2005 as Exhibit 99.7 to Commerce Energy Group, Inc.s Current Report on
Form 8-K and incorporated herein by reference.10.8
    
    Settlement Agreement and General Release dated November 17, 2005 by and among Richard L.
Boughrum, Commerce Energy Group, Inc. and Commerce Energy, Inc., previously filed with
the Commission on November 23, 2005 as Exhibit 99.8 to Commerce Energy Group, Inc.s
Current Report on Form 8-K and incorporated herein by reference.
 33




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##### Table of Contents



ExhibitNumber
    
    Description10.9
    
    Promissory Note dated November 17, 2005 by and between Commerce Energy Group, Inc. and
Richard L. Boughrum, previously filed with the Commission on November 23, 2005 as
Exhibit 99.9 to Commerce Energy Group, Inc.s Current Report on Form 8-K and
incorporated herein by reference.10.10
    
    Voting and Standstill Agreement dated November 17, 2005, by and between Commerce Energy
Group, Inc. and Richard L. Boughrum, previously filed with the Commission on November
23, 2005 as Exhibit 99.10 to Commerce Energy Group, Inc.s Current Report on Form 8-K
and incorporated herein by reference.10.11
    
    Amendment No. 1 to Executive Employment Agreement dated November 17, 2005, by and among
Commerce Energy Group, Inc., Commerce Energy, Inc. and Richard L. Boughrum, previously
filed with the Commission on November 23, 2005 as Exhibit 99.11 to Commerce Energy
Group, Inc.s Current Report on Form 8-K and incorporated herein by reference.10.12
    
    Amendment No. 1 to Agreement Not to Engage in Prohibited Activities dated November 17,
2005 by and among Commerce Energy Group, Inc., Commerce Energy, Inc. and Richard L.
Boughrum, previously filed with the Commission on November 23, 2005 as Exhibit 99.12 to
Commerce Energy Group, Inc.s Current Report on Form 8-K and incorporated herein by
reference.10.13
    
    Settlement Agreement and General Release dated November 17, 2005, by and among Commerce
Energy Group, Inc., Commerce Energy, Inc. and Eric G. Alam, previously filed with the
Commission on November 23, 2005 as Exhibit 99.13 to Commerce Energy Group, Inc.s
Current Report on Form 8-K and incorporated herein by reference.10.14
    
    Employment Agreement, dated December 1, 2005 between Lawrence Clayton, Jr. and Commerce
Energy Group, Inc., previously filed with the Commission on December 6, 2005 as Exhibit
99.1 to Commerce Energy Group, Inc.s Current Report on Form 8-K and incorporated herein
by reference.10.15
    
    Stock Option Agreement dated December 1, 2005 between Lawrence Clayton, Jr. and Commerce
Energy Group, Inc., previously filed with the Commission on December 6, 2005 as Exhibit
99.2 to Commerce Energy Group, Inc.s Current Report on Form 8-K and incorporated herein
by reference.10.16
    
    Restricted Stock Agreement dated December 1, 2005 between Lawrence Clayton, Jr. and
Commerce Energy Group, Inc., previously filed with the Commission on December 6, 2005 as
Exhibit 99.3 to Commerce Energy Group, Inc.s Current Report on Form 8-K and
incorporated herein by reference.10.17
    
    Indemnification Agreement dated December 1, 2005 between Lawrence Clayton, Jr. and
Commerce Energy Group, Inc., previously filed with the Commission on December 6, 2005 as
Exhibit 99.4 to Commerce Energy Group, Inc.s Current Report on Form 8-K and
incorporated herein by reference.10.18
    
    Restricted Stock Agreement dated December 12, 2005 between Andrew Coppola and Commerce
Energy Group, Inc., previously filed with the Commission on December 15, 2005 as Exhibit
99.1 to Commerce Energy Group, Inc.s Current Report on Form 8-K and incorporated herein
by reference.10.19
    
    Form of Restricted Stock Agreement pursuant to the Commonwealth Energy Corporation 1999
Equity Incentive Plan, as amended (Time Vesting Version), previously filed with the
Commission on December 15, 2005 as Exhibit 99.2 to Commerce Energy Group, Inc.s Current
Report on Form 8-K and incorporated herein by reference.10.20
    
    Amended and Restated 2005 Employee Stock Purchase Plan previously filed with the
Commission on February 1, 2006 as Exhibit 99.1 to Commerce Energy Group, Inc.s Current
Report on Form 8-K and incorporated herein by reference.10.21
    
    2006 Stock Incentive Plan previously filed with the Commission
on February 1, 2006 as Exhibit 99.2 to Commerce Energy Group, Inc.s Current Report on
Form 8-K and incorporated herein by reference.
 34




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##### Table of Contents



Other Material Contracts
 ExhibitNumber
    
    Description10.22
    
    First Amendment to Sales Agency Agreement dated November 10, 2005, by and among Commerce
Energy, Inc. and American Communications Network, previously filed with the Commission
on November 17, 2005 as Exhibit 99.1 to Commerce Energy Group, Inc.s Current Report on
Form 8-K and incorporated herein by reference.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 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.1
    
    Amended and Restated Non-Employee Director Compensation Policy, effective March 10, 2006.
 35




---



##### Table of Contents



SIGNATURES
  COMMERCE ENERGY GROUP, INC.Date: March 16, 2006
    
    By:
    
    /s/ STEVEN S. BOSSSteven S. BossChief Executive Officer(Principal Executive Officer)Date: March 16, 2006
    
    By:
    
    /s/ LAWRENCE CLAYTON, JR.Lawrence Clayton, Jr.Chief Financial Officer(Principal Financial Officer)
 36




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##### Table of Contents



EXHIBIT INDEX
  ExhibitNumber
    
    Description3.1
    
    Amended and Restated Certificate of
Incorporation of Commerce Energy
Group, Inc., previously filed with
the Commission 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 Commission 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 Commission
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.
 Material Contracts Relating to Management Compensation Plans or Arrangements
 ExhibitNumber
    
    Description10.1
    
    Settlement Agreement and General
Release dated November 17, 2005 by
and among Peter T. Weigand, Commerce
Energy Group, Inc. and Commerce
Energy, Inc., previously filed with
the Commission on November 23, 2005
as Exhibit 99.1 to Commerce Energy
Group, Inc.s Current Report on Form
8-K and incorporated herein by
reference.10.2
    
    Promissory Note dated November 17,
2005 by and between Commerce Energy
Group, Inc. and Peter T. Weigand,
previously filed with the Commission
on November 23, 2005 as Exhibit 99.2
to Commerce Energy Group, Inc.s
Current Report on Form 8-K and
incorporated herein by reference.10.3
    
    Voting and Standstill Agreement dated
November 17, 2005, by and between
Commerce Energy Group, Inc. and Peter
T. Weigand, previously filed with the
Commission on November 23, 2005 as
Exhibit 99.3 to Commerce Energy
Group, Inc.s Current Report on Form
8-K and incorporated herein by
reference.10.4
    
    Amendment No. 1 to Executive
Employment Agreement dated November
17, 2005, by and among Commerce
Energy Group, Inc., Commerce Energy,
Inc. and Peter T. Weigand, previously
filed with the Commission on November
23, 2005 as Exhibit 99.4 to Commerce
Energy Group, Inc.s Current Report
on Form 8-K and incorporated herein
by reference.10.5
    
    Amendment No. 1 to Agreement Not to
Engage in Prohibited Activities dated
November 17, 2005 by and among
Commerce Energy Group, Inc., Commerce
Energy, Inc. and Peter T. Weigand,
previously filed with the Commission
on November 23, 2005 as Exhibit 99.5
to Commerce Energy Group, Inc.s
Current Report on Form 8-K and
incorporated herein by reference.10.6
    
    Amendment No. 1 to Agreement Not to
Compete dated November 17, 2005 by
and among Commerce Energy Group,
Inc., Commerce Energy, Inc. and Peter
T. Weigand, previously filed with the
Commission on November 23, 2005 as
Exhibit 99.6 to Commerce Energy
Group, Inc.s Current Report on Form
8-K and incorporated herein by
reference.10.7
    
    Agreement and Release dated November
17, 2005, by and among, Commerce
Energy Group, Inc., Commerce Energy,
Inc., Paul, Hastings, Janofsky &
Walker LLP, Eric G. Alam, Bruno R.
Kvetinskas, Greg M. Lander and Peter
T. Weigand, previously filed with the
Commission on November 23, 2005 as
Exhibit 99.7 to Commerce Energy
Group, Inc.s Current Report on Form
8-K and incorporated herein by
reference.10.8
    
    Settlement Agreement and General
Release dated November 17, 2005 by
and among Richard L. Boughrum,
Commerce Energy Group, Inc. and
Commerce Energy, Inc., previously
filed with the Commission on November
23, 2005 as Exhibit 99.8 to Commerce
Energy Group, Inc.s Current Report
 37




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##### Table of Contents



ExhibitNumber
    
    Descriptionon Form 8-K and incorporated herein
by reference.10.9
    
    Promissory Note dated November 17,
2005 by and between Commerce Energy
Group, Inc. and Richard L. Boughrum,
previously filed with the Commission
on November 23, 2005 as Exhibit 99.9
to Commerce Energy Group, Inc.s
Current Report on Form 8-K and
incorporated herein by reference.10.10
    
    Voting and Standstill Agreement dated
November 17, 2005, by and between
Commerce Energy Group, Inc. and
Richard L. Boughrum, previously filed
with the Commission on November 23,
2005 as Exhibit 99.10 to Commerce
Energy Group, Inc.s Current Report
on Form 8-K and incorporated herein
by reference.10.11
    
    Amendment No. 1 to Executive
Employment Agreement dated November
17, 2005, by and among Commerce
Energy Group, Inc., Commerce Energy,
Inc. and Richard L. Boughrum,
previously filed with the Commission
on November 23, 2005 as Exhibit 99.11
to Commerce Energy Group, Inc.s
Current Report on Form 8-K and
incorporated herein by reference.10.12
    
    Amendment No. 1 to Agreement Not to
Engage in Prohibited Activities dated
November 17, 2005 by and among
Commerce Energy Group, Inc., Commerce
Energy, Inc. and Richard L. Boughrum,
previously filed with the Commission
on November 23, 2005 as Exhibit 99.12
to Commerce Energy Group, Inc.s
Current Report on Form 8-K and
incorporated herein by reference.10.13
    
    Settlement Agreement and General
Release dated November 17, 2005, by
and among Commerce Energy Group,
Inc., Commerce Energy, Inc. and Eric
G. Alam, previously filed with the
Commission on November 23, 2005 as
Exhibit 99.13 to Commerce Energy
Group, Inc.s Current Report on Form
8-K and incorporated herein by
reference.10.14
    
    Employment Agreement, dated December
1, 2005 between Lawrence Clayton, Jr.
and Commerce Energy Group, Inc.,
previously filed with the Commission
on December 6, 2005 as Exhibit 99.1
to Commerce Energy Group, Inc.s
Current Report on Form 8-K and
incorporated herein by reference.10.15
    
    Stock Option Agreement dated December
1, 2005 between Lawrence Clayton, Jr.
and Commerce Energy Group, Inc.,
previously filed with the Commission
on December 6, 2005 as Exhibit 99.2
to Commerce Energy Group, Inc.s
Current Report on Form 8-K and
incorporated herein by reference.10.16
    
    Restricted Stock Agreement dated
December 1, 2005 between Lawrence
Clayton, Jr. and Commerce Energy
Group, Inc., previously filed with
the Commission on December 6, 2005 as
Exhibit 99.3 to Commerce Energy
Group, Inc.s Current Report on Form
8-K and incorporated herein by
reference.10.17
    
    Indemnification Agreement dated
December 1, 2005 between Lawrence
Clayton, Jr. and Commerce Energy
Group, Inc., previously filed with
the Commission on December 6, 2005 as
Exhibit 99.4 to Commerce Energy
Group, Inc.s Current Report on Form
8-K and incorporated herein by
reference.10.18
    
    Restricted Stock Agreement dated
December 12, 2005 between Andrew
Coppola and Commerce Energy Group,
Inc., previously filed with the
Commission on December 15, 2005 as
Exhibit 99.1 to Commerce Energy
Group, Inc.s Current Report on Form
8-K and incorporated herein by
reference.10.19
    
    Form of Restricted Stock Agreement
pursuant to the Commonwealth Energy
Corporation 1999 Equity Incentive
Plan, as amended (Time Vesting
Version), previously filed with the
Commission on December 15, 2005 as
Exhibit 99.2 to Commerce Energy
Group, Inc.s Current Report on Form
8-K and incorporated herein by
reference.10.20
    
    Amended and Restated 2005 Employee
Stock Purchase Plan previously filed
with the Commission on February 1,
2006 as Exhibit 99.1 to Commerce
Energy Group, Inc.s Current Report
on Form 8-K and incorporated herein
by reference.10.21
    
    2006 Stock Incentive Plan previously filed
with the Commission on February 1,
2006 as Exhibit 99.2 to Commerce
Energy Group, Inc.s Current Report
on Form 8-K and incorporated herein
by reference.
 38




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##### Table of Contents



Other Material Contracts
 ExhibitNumber
    
    Description10.22
    
    First Amendment to Sales Agency Agreement dated November 10, 2005, by and among Commerce
Energy, Inc. and American Communications Network, previously filed with the Commission
on November 17, 2005 as Exhibit 99.1 to Commerce Energy Group, Inc.s Current Report on
Form 8-K and incorporated herein by reference.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 2002.99.1
    
    Amended and Restated Non-Employee Director Compensation Policy, effective March 10, 2006.
 39