UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)





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





For the quarterly period ended
      October 31, 2008





OR





           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
            20-0501090(State
      or other jurisdiction
            (I.R.S.
      Employerof
      incorporation or organization)
            Identification
      No.)600
      Anton Boulevard, Suite 2000Costa
      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 R No 


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




Large
      accelerated filer 
            Accelerated
      filer Non-accelerated
      filer  
              (Do
      not check if a smaller reporting company)
            Smaller
      reporting company  R




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




Yes   No R





As
of October 31, 2008, 31,131,285 shares of the registrant’s common stock,
par value $0.001 per share, were outstanding.










COMMERCE
ENERGY GROUP, INC.





Form
10-Q





For
the Period Ended October 31, 2008





Index











Page
              No.Explanatory
      Note
            
            
            iPART
      I — FINANCIAL INFORMATION
            
            
            1Item
      1. Financial Statements (Unaudited)
            
            
            1Condensed
      Statement of Net Assets in Liquidation for the three months ended October
      31, 2008
            
            
            1Condensed
      Consolidated Balance Sheet as of July 31, 2008
            
            
            2Condensed
      Consolidated Statements of Operations for the three months ended October
      31, 2008 and 2007
            
            
            3Condensed
      Consolidated Statements of Cash Flows for the three months ended October
      31, 2008 and 2007
            
            
            4Notes
      to Condensed Consolidated Financial Statements
            
            
            5Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
            
            
            8Item
      4T. Controls and Procedures
            
            
            10PART
      II — OTHER INFORMATION
            
            
            12Item
      1. Legal Proceedings
            
            
            12Item
      1A. Risk Factors
            
            
            12Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
            
            
            12Item
      3. Defaults Upon Senior Securities
            
            
            12Item
      4. Submission of Matters to a Vote of  Security
    Holders
            
            
            12Item
      5. Other Information
            
            
            12Item
      6. Exhibits
            
            
            14SIGNATURES
            
            
            16
















COMMERCE
ENERGY GROUP, INC.





Explanatory
Note




On December15, 2008, Commerce
Energy Group, Inc, or the Company, filed a current report on Form
8-K/A (Amendment No. 1) dated December 12,
2008 with the Securities and Exchange Commission, or the December 2008 Form 8-K,reporting,among other
things, it had consented to a foreclosure proceeding under Section 9-620 under
the New YorkUniform Commercial Code.In connection with such foreclosure, all of
the common stock of Commerce Energy, Inc., the wholly-owned operating company of
the Company, or Commerce, was ultimately accepted by the lenders in satisfaction
of allof the Company’s secured debt.As an inducement to the Company to accept
the foreclosure, the lenders (i) agreed to the consensual foreclosure, and
pursuant to the terms of the acceptance agreement; (ii) consented to the payment
of a dividend from Commerce to the Company in the amount of $3.1 million; and
(iii) consented to Commerce’s assumptions of certain liabilities of the Company.Immediately after the consensual foreclosure
transaction, theBoard decided to make a
distribution to its shareholders of $2,614,780, after providing for all known or
reasonably foreseeable obligations to theCompany. This
distribution was comprised of a cash dividend on shares of the Company’s common
stock in the amount of $0.084 per share to be paid to the Company’s shareholders
of record as of December 11, 2008. In addition to the dividend payment, such
shareholders shall also receive an additional payment of $0.001 per right in
connection with the redemption of all the outstanding Rights under the Company’s
Shareholders Rights Plan dated July 1, 2004. The distribution date was set for
December 17, 2008.After payment of the
dividend, the Companyplans tohold a special meeting of stockholders to dissolve.
  For a further discussion of the
above-referenced transaction and related pro forma financial information,
reference is made to the December 2008 Form 8-K.
 
 You should read this Form 10-Q for the Quarterly Period
Ended October 31, 2008 in conjunction with the December 2008 Form
8-K.
   i





PART
I — FINANCIAL INFORMATION







Item
1. Financial Statements.





COMMERCE
ENERGY GROUP, INC.





CONDENSED
STATEMENT OF NET ASSETS IN LIQUIDATION


(In
Thousands)


(Unaudited)








October 31, 2008Assets,
      net of secured debt
            
            $
            46,604Other
      liabilities
            
            
            (43,504
            )Net
      assets available in liquidation
            
            $
            3,100








The
accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
 1







COMMERCE
ENERGY GROUP, INC.





CONDENSED
CONSOLIDATED BALANCE SHEET


(Going
Concern Basis)


(In
thousands, except per share amounts)











July
      31, 2008ASSETSCurrent
      assets:Cash
      and equivalents
            
            $
            5,042Accounts
      receivable, net
            
            
            82,416Natural
      gas inventory
            
            
            7,717Prepaid
      expenses and other current assets
            
            
            13,269Total
      current assets
            
            
            108,444Deposits
      and other assets
            
            
            1,600Property
      and equipment, net
            
            
            8,009Other
      intangible assets, net
            
            
            3,976Total
      assets
            
            $
            122,029LIABILITIES
      AND STOCKHOLDERS’ EQUITYCurrent
      liabilities:Energy
      and accounts payable
            
            $
            58,500Short-term
      borrowings
            
            
            11,756Accrued
      liabilities
            
            
            11,901Total
      current liabilities
            
            
            82,157Commitments
      and contingenciesStockholders’
      equity:Common
      stock — 150,000 shares authorized with $0.001 par value;
              31,141
      (unaudited) issued and outstanding at October 31, 2008
              and
      31,141 at July 31, 2008
            
            
            61,919Other
      comprehensive loss
            
            
            (996
            )Retained
      earnings
            
            
            (21,051
            )Total
      stockholders’ equity
            
            
            39,872Total
      liabilities and stockholders’ equity
            
            $
            122,029









The
accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
 2





COMMERCE
ENERGY GROUP, INC.





CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Going
Concern Basis)


(In
thousands, except per share amounts)


(Unaudited)








Three
      Months Ended
              October
      31,2008
            
            
            2007Net
      revenue
            
            $
            98,614
            
            
            $
            105,597Direct
      energy costs
            
            
            88,540
            
            
            
            89,209Gross
      profit
            
            
            10,074
            
            
            
            16,388Selling
      and marketing expenses
            
            
            1,863
            
            
            
            3,932General
      and administrative expenses
            
            
            11,948
            
            
            
            13,460Adjustment
      to adopt liquidation basis of accounting
            
            
            35,820
            
            
            
            —Loss
      from operations
            
            
            (39,557
            )
            
            
            (1,004
            )Other
      income (expense):Interest
      income
            
            
            58
            
            
            
            230Interest
      expense
            
            
            (6,846
            )
            
            
            (313
            )Mark-to-market
      gain on warrants
            
            
            2,318
            
            
            
            —Gain
      on sale of Texas electric service contracts
            
            
            7,790
            
            
            
            —Total
      other income and expenses
            
            
            3,320
            
            
            
            (83
            )Net
      loss
            
            $
            (36,237
            )
            
            $
            (1,087
            )Income
      loss per common share:Basic
            
            $
            (1.16
            )
            
            $
            (0.04
            )Diluted
            
            $
            (1.16
            )
            
            $
            (0.04
            )





The
accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
 3







COMMERCE
ENERGY GROUP, INC.





CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Going
Concern Basis)


(In
Thousands)


(Unaudited)








Three
      Months Ended
              October
      31,2008
            
            
            2007Cash
      Flows From Operating ActivitiesNet
      loss
            
            $
            (36,237
            )
            
            $
            (1,087
            )Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Adjustment
      to adopt liquidation basis of  accounting
            
            
            35,820
            
            
            
            —Depreciation
            
            
            737
            
            
            
            544Amortization
            
            
            329
            
            
            
            440Amortization
      of deferred loan costs
            
            
            1,267
            
            
            
            41Write
      down of inventory
            
            
            3,154
            
            
            
            —Gain
      on sale of assets
            
            
            (7,790
            )
            
            
            —Changes
      related to issuance of warrants
            
            
            (2,318
            )
            
            
            —Provision
      for doubtful accounts
            
            
            3,121
            
            
            
            3,665Stock-based
      compensation
            
            
            58
            
            
            
            190Changes
      in operating assets and liabilities:Accounts
      receivable, net
            
            
            22,825
            
            
            
            (4,384
            )Inventory
            
            
            (3,190
            )
            
            
            (3,476
            )Prepaid
      expenses and other assets
            
            
            (7,502
            )
            
            
            (1,959
            )Energy
      and accounts payable
            
            
            (29,298
            )
            
            
            (6,859
            )Accrued
      liabilities and other
            
            
            (7,484
            )
            
            
            (133
            )Net
      cash used in operating activities
            
            
            (26,508
            )
            
            
            (13,018
            )Cash
      Flows From Investing ActivitiesPurchase
      of property and equipment
            
            
            (657
            )
            
            
            (852
            )Proceeds
      from sale of Texas electric service contracts
            
            
            8,500
            
            
            
            —Net
      cash provided by (used) in investing activities
            
            
            7,843
            
            
            
            (852
            )Cash
      Flows From Financing ActivitiesShort-term
      borrowings
            
            
            22,174
            
            
            
            12,400Credit
      line commitment fee
            
            
            (2,435
            )
            
            
            —Decrease
      in restricted cash
            
            
            —
            
            
            
            353Net
      cash provided by financing activities
            
            
            19,739
            
            
            
            12,753Increase
      (decrease) in cash and equivalents
            
            
            1,074
            
            
            
            (1,117
            )Cash
      and equivalents at beginning of period
            
            
            5,042
            
            
            
            6,559Cash
      and equivalents at end of period
            
            $
            6,116
            
            
            $
            5,442Supplemental
      Disclosure of Cash Flow InformationCash
      paid for:Interest
            
            $
            1,746
            
            
            $
            272Income
      taxes
            
            $
            —
            
            
            $
            147








The
accompanying notes are an integral part of these Condensed Consolidated
Financial Statements.
 4
 COMMERCE ENERGY GROUP,
INC.
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
In Thousands, Except for Share and Per Share Amounts)
 (Unaudited)


Note
1. Basis of Presentation




The
information set forth in this Form 10-Q for the Quarterly Period Ended October
31, 2008, or the October 2008 Form 10-Q, relates to periods during which the
Company had an operating business, which periods were prior to the consensual
foreclosure, or the Consensual Foreclosure, summarized below and previously
disclosed in the Company’s Current Report on Form 8-K/A (Amendment No. 1) dated
December 12, 2008 and filed with the Securities and Exchange Commission on
December 15, 2008, or the December 2008 Form 8-K. As a result of the Consensual
Foreclosure, the Company no longer has an operating business and the Board of
Directors of the Company has recommended that the Company be dissolved. The
October 2008 Form 10-Q is being filed to comply with a requirement under the
Securities Exchange Act of 1934, as amended.
 
 The
following summary of the Consensual Foreclosure is qualified in its entirety by
the information contained in Item 1.01 of the December 2008 Form 8-K, which is
incorporated by reference herein. You are encouraged to read the December 2008
Form 8-K, including the exhibits thereto, in its entirety.
 
 On
December 11, 2008, AP Finance, LLC and Commerce Gas and Electric Corp.,
collectively, the Lenders, notified the Company in writing that an event of
default existed under the Discretionary Line of Credit Demand Note executed by
the Company and Commerce in favor of AP Finance, LLC. On December 11, 2008, the
Lenders proposed under Section 9-620 of the Uniform Commercial Code, or the UCC,
as in effect in the State of New York and subject to obtaining the Company’s
consent, to accept all shares of stock in Commerce in satisfaction of the
Company’s liabilities and obligations with respect to the Secured Debt pursuant
to the terms and conditions of an acceptance agreement or the Acceptance
Agreement, between the Company and the Lenders.
 
 The
Company consented to the Consensual Foreclosure and executed and delivered the
Acceptance Agreement and the other documents related thereto on December 11,
2008.
 
 In
connection with the Consensual Foreclosure, to induce the Company to consent
rather than exercising its statutory rights to delay the foreclosure, and
pursuant to the terms of the Acceptance Agreement, the Lenders: (i) consented to
the payment of a divided from Commerce to the Company in the amount of $3.1
million immediately prior to the delivery of the Acceptance Agreement; (ii)
consented to Commerce’s assumption of certain liabilities and obligations of the
Company identified in an assumption letter dated December 11, 2008 between the
Company and Commerce, or the Assumption Letter, including, but not limited to,
all liabilities and obligations of the Company under the employment agreements
between the Company and its executive officers (including any severance
obligations thereunder); (iii) agreed to indemnify the Company and its officers,
directors, employees, agents and representatives from liabilities arising from
any breach by Commerce of its obligations under the Assumption Letter; (iv)
released the Company from any and all liabilities and obligations with respect
to the Secured Debt; and (v) cancelled all warrants to acquire shares of common
stock of the Company held by AP Finance, LLC.
 
 As a
result of the Consensual Foreclosure, the Company ceased all
operations. Additionally, following the Consensual Foreclosure and after
providing for all known and reasonably foreseeable liabilities and obligations
of the Company, the Company decided to make a distribution in the amount of
$2,614,780. This distribution was comprised of a
cash dividend on shares of the Company’s common stock in the amount of $0.084
per share to be paid to the Company’s shareholders of record as of December 11,
2008. In addition to the dividend payment, such shareholders shall also receive
an additional payment of $0.001 per right in connection with the redemption of
all the outstanding Rights under the Company’s Shareholders Rights Plan dated
July 1, 2004. The distribution date was set for December 17, 2008.After payment of the dividend, the Companyplans tohold a
special meeting of stockholders to dissolvethe Company.
 
 As a
result, the Company changed its basis of accounting effective October 31, 2008
(and for the periods ending subsequent to that date) from the going concern
basis to a liquidation basis in accordance with generally accepted accounting
principals in the United States (“GAAP”). Accordingly, at October 31, 2008,
assets have been reported at estimated net realizable value and liabilities are
presented based on estimated settlement amounts based on the terms of the
Consensual Foreclosure. The valuation of assets and liabilities in liquidation
is based on management’s estimate of their net realizable value or settlement
amounts at October 31, 2008. Such values could differ materially from amounts
ultimately realized in the future as the Company completes its liquidation.
Differences between the estimated revalued amounts of assets and liabilities and
actual cash transactions after October 31, 2008 will be recognized in the period
in which they are subject to reasonable
   5
 COMMERCE ENERGY GROUP,
INC. 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
In Thousands, Except for Share and Per Share Amounts) —
Continued
 (Unaudited)
  estimation
in accordance with GAAP.
 
 The
accompanying condensed statement of net assets in liquidation at October 31,
2008, the condensed statements of operations for the three month periods ended
October 31, 2008 and 2007, and the statements of cash flows for the three month
periods ended October 31, 2008 and 2007 are unaudited. Except for the statement
of net assets in liquidation, these financial statements have been prepared on
the same basis as the Company's audited financial statements and, in the opinion
of management, reflect all adjustments which (except as described in these notes
to unaudited condensed financial statements) are only of a normal recurring
nature and which are necessary for a fair presentation of the net assets in
liquidation, cash flows, and results of operations for such periods. Except
for the statement of net assets in liquidation, these unaudited condensed
financial statements should be read in conjunction with the audited financial
statements included in the Company's Form 10-K filed with the Securities
and Exchange Commission on November 13, 2008.
 
 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.
 
 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
                October
      31,2008
              
              
              2007Numerator:Net
      loss
              
              $
              (36,237
              )
              
              $
              (1,087
              )Net
      loss applicable to common stock —basic and diluted
              
              $
              (36,237
              )
              
              $
              (1,087
              )Denominator:Weighted-average
      outstanding common shares — basic
              
              
              31,134
              
              
              
              30,380Effect
      of stock options
              
              
              —
              
              
              
              —Weighted-average
      outstanding common shares — diluted
              
              
              31,134
              
              
              
              30,380
 
 Note
3.  Sale of Texas Electric Service Contracts
 
 On
October 24, 2008, Commerce Energy completed the sale of all of its electric
service contracts with its customers in Texas and certain assets related to
these contracts to Ambit pursuant to the terms and conditions of an Asset
Purchase Agreement dated October 23, 2008 by and between Commerce Energy
and Ambit.
 
 The
initial purchase price paid to Commerce Energy in connection with the
transaction is $11.2 million with $8.5 million paid in cash on
October 24, 2008, and $2.7 million, to be reduced by customer deposits
and adjusted by positive or negative monetary adjustments if the number of
active customers transferred deviates by more than 2.5% from 57,588 customers,
payable in cash on or before November 24, 2008. The second payment,
originally due on November 24, 2008, received on December 5, 2008, totaled $1.1
million, and reflected adjustments primarily due to customer deposits. In
addition, Ambit will assume certain liabilities relating to the assets being
sold. Ambit has also agreed to make residual payments to Commerce Energy during
a period beginning on the closing date and continuing through December 31,
2010. The residual payments, which are calculated and paid monthly, generally
consist of $3.50 for each electric service contract being transferred that has
charges invoiced to Ambit that are not past due and are estimated to be
approximately $3.6 million.
 
  6
 COMMERCE ENERGY GROUP,
INC.
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Dollars
In Thousands, Except for Share and Per Share Amounts) — Continued
 (Unaudited)
  The
following details the gain recorded from the sale of Texas electric service
contracts:
 
 Proceeds
      from sale (before residual payments)
              
              $
              11,200Less:Write
      off of prepaid sales commissions
              
              (1,969
              )Settlement
      of receivables and customer deposits
              
              
              (596
              )Write
      off of Texas customer related property and equipment
              
              
              (509
              )Broker
      and legal fees
              
              
              (336
              )Gain
      on sale of Texas electric service contracts
              
              $
              7,790
 
  7
  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, 2008, or the Form 10-K/A.
 
 Some
of the statements in this quarterly report on Form 10-Q 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 quarterly
report on Form 10-Q 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, our ability to find a replacement for our current credit
facility and financing to repay our senior notes and demand note by December 22,
2008,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; decisions by our energy suppliers requiring us to post additional
collateral for our energy purchases; uncertainties in the capital markets should
we seek to raise additional equity or debt financing; uncertainties relating to
federal and state proceedings regarding issues emanating from the 2000-2001
California energy crisis, including any resulting federal, state, or
administrative legal proceedings which could affect us; increased competition;
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 U.S. 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 October
31, 2008, we delivered electricity to approximately 97,000 customers in
California, Maryland, Michigan, New Jersey, Pennsylvania and Texas; and natural
gas to approximately 46,000 customers in California, Florida, Georgia, Maryland,
Nevada, Ohio and Pennsylvania.
 
 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 to and from
other market participants. We utilize third-party facilities for the storage of
natural gas.
  8
 
 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, our ability to access additional capital, and our ability to acquire
energy for our customers at competitive prices and on reasonable credit
terms.
 
 Bad.
Debt.  Our bad debt expense was $3.1 million in the first quarter of
fiscal 2009. During fiscal 2008, approximately 87% of our bad debt expense was
derived from Texas electricity customers and, with the sale of Texas electricity
customers to Ambit in the first quarter of fiscal 2009; fiscal 2009 bad debt
expense was expected to decrease.
 
 TexasElectric Service Contracts. On October 24, 2008, Commerce
completed the sale of all of its electric service contracts with its customers
in Texas and certain assets related to these contracts to Ambit Energy Group,
L.P., or Ambit, pursuant to the terms and conditions of an Asset Purchase
Agreement dated October 23, 2008 by and between Commerce Energy and
Ambit.
 
 The
initial purchase price paid to Commerce Energy in connection with the
transaction is $11.2 million with $8.5 million paid in cash on
October 24, 2008, and $2.7 million, to be reduced by customer deposits
and adjusted by positive or negative monetary adjustments if the number of
active customers transferred deviates by more than 2.5% from 57,588 customers,
payable in cash on or before November 24, 2008. The second payment,
originally due on November 24, 2008, received on December 5, 2008, totaled $1.1
million, and reflected adjustments primarily due to customer deposits. In
addition, Ambit will assume certain liabilities relating to the assets being
sold. Ambit has also agreed to make residual payments to Commerce Energy during
a period beginning on the closing date and continuing through December 31,
2010. The residual payments, which are calculated and paid monthly, generally
consist of $3.50 for each electric service contract being transferred that has
charges invoiced to Ambit that are not past due and are estimated to be
approximately $3.6 million.
  AP
Finance Debt Financing. In response to
our need to reach an agreement with our senior lender regarding the terms of an
amendment to our credit facility, on August 21, 2008, the Company,
Commerce and AP Finance LLC, or AP Finance, entered into a Note and Warrant
Purchase Agreement whereby AP Finance agreed to purchase from the Commerce and
Commerce Energy two 12% Senior Secured Convertible Promissory Notes in the
aggregate principal amount of $23,100,000 or the Senior Convertible Notes, plus
warrants to purchase an aggregate amount of 3,070,000 shares of our common stock
at $1.15 per share. The Senior Convertible Notes are subordinated to our
outstanding credit facility and convertible into shares of our common stock at a
conversion price of $3.00 per share, subject to certain adjustments and
limitations. In addition, on October 27, 2008, AP Finance agreed to provide up
to $6.0 million to Commence Energy in a discretionary line of credit and
advanced $3.6 million under a Discretionary Line of Credit Demand Note.
  Consensual
Foreclosure. The
information set forth in this Form 10-Q for the Quarterly Period Ended October
31, 2008, or the October 2008 Form 10-Q, relates to periods during which the
Company had an operating business, which periods were prior to the consensual
foreclosure, or the Consensual Foreclosure, summarized below and previously
disclosed in the Company’s Current Report on Form 8-K/A (Amendment No. 1) dated
December 12, 2008 and filed with the Securities and Exchange Commission on
December 15, 2008, or the December 2008 Form 8-K. As a result of the Consensual
Foreclosure, the Company no longer has an operating business and the Board of
Directors of the Company has recommended that the Company be dissolved. You are
encouraged to read the December 2008 Form 8-K, including the exhibits thereto,
in its entirety.
 
 On
December 11, 2008, AP Finance, LLC and Commerce Gas and Electric Corp.,
collectively the Lenders notified the Company in writing that an event of
default existed under the Discretionary Line of Credit Demand Note executed by
the Company and Commerce in favor of AP Finance, LLC, the Lenders, or the
Secured Debt. On December 11, 2008, the Lenders proposed under Section 9-620 of
the Uniform Commercial Code, or the UCC as in effect in the State of New York
and Section 9620 of the UCC as in effect in the State of California and subject
to obtaining the Company’s consent, to accept all shares of stock in Commerce in
satisfaction of the Company’s liabilities and obligations with respect to the
Secured Debt pursuant to the terms and conditions of an acceptance agreement, or
the Acceptance Agreement, between the Company and the Lenders.
 
 The
Company consented to the Consensual Foreclosure and executed and delivered the
Acceptance Agreement and the other documents related thereto on December 11,
2008.
 
 In
connection with the Consensual Foreclosure, to induce the Company to consent
rather than exercising its statutory rights to delay the foreclosure, and
pursuant to the terms of the Acceptance Agreement, the Lenders: (i)
   9
 
  consented
to the payment of a divided from Commerce to the Company in the amount of $3.1
million immediately prior to the delivery of the Acceptance Agreement; (ii)
consented to Commerce’s assumption of certain liabilities and obligations of the
Company identified in an assumption letter dated December 11, 2008 between the
Company and Commerce, or the Assumption Letter, including, but not limited to,
all liabilities and obligations of the Company under the employment agreements
between the Company and its executive officers (including any severance
obligations thereunder); (iii) agreed to indemnify the Company and its officers,
directors, employees, agents and representatives from liabilities arising from
any breach by Commerce of its obligations under the Assumption Letter; (iv)
released the Company from any and all liabilities and obligations with respect
to the Secured Debt; and (v) cancelled all warrants to acquire shares of common
stock of the Company held by AP Finance, LLC.
 
 As a
result of the Consensual Foreclosure, the Company ceased all operations.
Additionally, following the Consensual Foreclosure and after providing for all
known and reasonably foreseeable liabilities and obligations of the Company,
theBoard
decided to make a cash distribution to its shareholders of
$2,614,780. This distribution was comprised
of a cash dividend on shares of the Company’s common stock in the amount of
$0.084 per share to be paid to the Company’s shareholders of record as of
December 11, 2008. In addition to the dividend payment, such shareholders shall
also receive an additional payment of $0.001 per right in connection with the
redemption of all the outstanding Rights under the Company’s Shareholders Rights
Plan dated July 1, 2004. The distribution date was set for December 17, 2008.After payment of the dividend, the Companyplans tohold a special meeting of stockholders to dissolve the
Company.
 
 The
Company has furnished pro form financial information relating to the disposition
of the shares of stock in Commerce under Item 9.01(b) of the December 2008 Form
8-K, which you are encouraged to read in conjunction with the October 2008 Form
10-Q.
 
 Results
of Operations
 
 A
comparison of the results of operations between fiscal periods would not be
helpful to investors due to the announced intention to pursue an orderly
cessation of our operations. The Company has implemented liquidation
basis accounting effective October 31, 2008.
 
 In
connection with the adoption of liquidation accounting discussed above, the
Company recognized impairment charges of $35.8 million for the three months
ended October 31, 2008.
 
 Liquidity
and Capital Resources
 
 As a
result of the Consensual Foreclosure, the Company ceased all operations.
Additionally, following the Consensual Foreclosure and after providing for all
known and reasonably foreseeable liabilities and obligations of the Company, the
Company’s board of directors took action to distribute substantially all of its
cash to its stockholders, the result of which would leave the Company with
virtually no assets.
 
 Item
4T.  Controls and Procedures.
  Evaluation
of Disclosure Controls and Procedures
  Our
management, including the Chief Executive Officer and the Chief Financial
Officer have concluded, based on their evaluation required by paragraph (b) of
Rules 13a-15 or 15d-15(e) as of the end of the period covered by this
report, that our disclosure controls and procedures, as defined in Rules
13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), are not effective at the reasonable assurance level
because of the material weakness in internal control over financial reporting
referenced below to ensure that all information required to be disclosed by us
in the reports filed or submitted by us under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
rules and forms of the SEC.
  In our
Annual Report on Form 10-K/A (Amendment No. 1) for the year ended July 31, 2008,
we identified material weaknesses in our internal control over financial
reporting under the caption “Management’s Report on Internal Control over
Financial Reporting” in Part II, Item 9A(T).  Controls and
Procedures. The material weaknesses included deficiencies in our internal
controls over the existence, completeness and accuracy of revenues, cost of
revenues, deferred revenues and associated accounts
receivable.  Specifically, the design of controls over the preparation
and review of the account reconciliations and analysis of revenues, cost of
revenues and deferred revenues may not be adequate to detect material errors in
revenues, cost of revenues, deferred revenues and associated accounts
receivable. A contributing factor was found to be the ineffective
  10
 
  operation
of certain of our Information System controls over revenue and billing systems.
This control deficiency could result in a misstatement of revenue, deferred
revenue and accounts receivable that would result in a material misstatement to
the Company’s interim or annual consolidated financial statements. As a result,
management determined that this control deficiency constituted a material
weakness.
  Changes
in Internal Control over Financial Reporting
 
 There was
no change in the Company’s internal control over financial reporting during the
quarter ended October 31, 2008 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
  11
  PART
II — OTHER INFORMATION
 
 Item
1. Legal Proceedings.
 
 Reference
is made to our Annual Report on Form 10-K/A (Amendment No. 1) for the year ended
July 31, 2008, or the Form 10-K, for a summary of our previously reported legal
proceedings.  Since the date of the Form 10-K, there have been no
material developments in previously reported legal proceedings.
 
 Item
1A. Risk Factors.
 
 Our
business, financial condition and operations are subject to a number of factors,
risks and uncertainties, including those previously disclosed under Part I. Item
1A “Risk Factors” of our Form 10-K. There have been no material changes to the
risk factors as disclosed in our Form 10-K.
 
 Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
 None.
 
 Item
3. Defaults upon Senior Securities.
 
 See Item
5 herein regarding the Consensual Foreclosure.
 
 Item
4. Submission of Matters to a Vote of Security Holders.
 
 None.
 
 Item
5. Other Information.
 
 Consensual
Foreclosure
 
 The
information set forth in this Form 10-Q for the Quarterly Period Ended October
31, 2008, or the October 2008 Form 10-Q, relates to periods during which the
Company had an operating business, which periods were prior to the consensual
foreclosure or the Consensual Foreclosure, summarized below and previously
disclosed in the Company’s current report on Form 8-K/A (Amendment No. 1) dated
December 12, 2008 filed with the Securities and Exchange Commission on December
15, 2008, or the December 2008 Form 8-K. As a result of the Consensual
Foreclosure, the Company no longer has an operating business and the Board of
Directors of the Company has recommended that the Company be dissolved.
  The
following summary of the Consensual Foreclosure is qualified in its entirety by
the information contained in Item 1.01 of the December 2008 Form 8-K, which is
incorporated by reference herein. You are encouraged to read the December 2008
Form 8-K, including the exhibits thereto, in its entirety.
  On
December 11, 2008, AP Finance, LLC and Commerce Gas and Electric Corp.,
collectively, the Lenders, notified the Company in writing that an event of
default existed under the Discretionary Line of Credit Demand Note executed by
the Company and Commerce in favor of AP Finance, LLC. On December 11, 2008,
the Lenders proposed under Section 9-620 of the Uniform Commercial Code, or the
UCC, as in effect in the State of New York and subject to obtaining the
Company’s consent, to accept all shares of stock in Commerce Energy, Inc., or
Commerce, in satisfaction of the Company’s liabilities and obligations with
respect to the Secured Debt pursuant to the terms and conditions of an
acceptance agreement, or the Acceptance Agreement, between the Company and the
Lenders.
  The
Company consented to the Consensual Foreclosure and executed and delivered the
Acceptance Agreement and the other documents related thereto on December 11,
2008.
  In
connection with the Consensual Foreclosure, to induce the Company to consent
rather than exercising its statutory rights to delay the foreclosure, and
pursuant to the terms of the Acceptance Agreement, the Lenders: (i) consented to
the payment of a divided from Commerce to the Company in the amount of $3.1
million immediately prior to the delivery of the Acceptance Agreement; (ii)
consented to Commerce’s assumption of certain liabilities and obligations of the
Company identified in an assumption letter dated December 11, 2008 between the
Company and Commerce, or the Assumption Letter, including, but not limited to,
all liabilities and obligations of the Company under the employment agreements
between the Company and its executive officers (including any severance
obligations thereunder); (iii) agreed to indemnify the Company and its officers,
directors, employees, agents and representatives from liabilities arising from
any breach by Commerce of its
   12
 
  obligations
under the Assumption Letter; (iv) released the Company from any and all
liabilities and obligations with respect to the Secured Debt; and (v) cancelled
all warrants to acquire shares of common stock of the Company held by AP
Finance, LLC.
  As a
result of the Consensual Foreclosure, the Company ceased all operations.
Additionally, following the Consensual Foreclosure and after providing for all
known and reasonably foreseeable liabilities and obligations of the Company,
theBoard
decided to make a cash distribution to its shareholders of
$2,614,780. This distribution was comprised
of a cash dividend on shares of the Company’s common stock in the amount of
$0.084 per share to be paid to the Company’s shareholders of record as of
December 11, 2008. In addition to the dividend payment, such shareholders shall
also receive an additional payment of $0.001 per right in connection with the
redemption of all the outstanding Rights under the Company’s Shareholders Rights
Plan dated July 1, 2004. The distribution date was set for December 17, 2008.After payment of the dividend, the Companyplans tohold a special meeting of stockholders to dissolve the
Company.
 
 The
Company has furnished pro form financial information relating to the disposition
of the shares of stock in Commerce under Item 9.01(b) of the December 2008 Form
8-K, which you are encouraged to read in conjunction with the October 2008 Form
10-Q.
  Annual
Meeting of Stockholders
 
 The
Company has postponed its annual meeting of shareholders relating to its fiscal
year ended July 31, 2008 previously set for Thursday, January 8, 2009. A revised
meeting date has not yet been determined.
  13


Item
6.                      Exhibits.





The
exhibits listed below are hereby filed with the SEC as part of this
Report.





Exhibit
              Number
            
            DescriptionFiled
      with this Report:31.1
            
            Principal
      Executive Officer Certification pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
            
            Principal
      Financial Officer Certification pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
            
            Principal
      Executive Officer Certification pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
            
            Principal
      Financial Officer Certification pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.Incorporated
      by Reference: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
            
            Second
      Amended and Restated Bylaws of Commerce Energy Group, Inc., previously
      filed with the SEC on December 17, 2007 as Exhibit 3.3 to Commerce Energy
      Group, Inc.’s Quarterly Report on Form 10-Q for the Quarterly Period Ended
      October 31, 2007 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 SEC 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 SEC 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
            
            Termination
      Agreement by and between Commerce Energy, Inc. and Tenaska Power
      Services Co. dated October 17, 2008, previously filed with the
      SEC on November 13, 2008 as Exhibit 10.91 to Commerce Energy
      Group, Inc.’s Annual Report on Form 10-K and incorporated herein
      by reference.10.2
            
            Eleventh
      Amendment to Loan and Security Agreement and Waiver by and among Commerce
      Energy Group, Inc., Commerce Energy, Inc., Wachovia Capital
      Finance Corporation (Western), as Agent and Lender, and Wells Fargo
      Foothill LLC, as Lender, dated August 21, 2008, previously filed
      with the SEC on November 13, 2008 as Exhibit 10.113 to Commerce
      Energy Group, Inc.’s Annual Report on Form 10-K and incorporated
      herein by reference.10.3
            
            Twelfth
      Amendment to Loan and Security Agreement and Waiver by and among Commerce
      Energy Group, Inc., Commerce Energy, Inc., Wachovia Capital
      Finance Corporation (Western), as Agent and Lender, and Wells Fargo
      Foothill LLC, as Lender, dated October 22, 2008, previously
      filed with the SEC on November 13, 2008 as Exhibit 10.114 to
      Commerce Energy Group, Inc.’s Annual Report on Form 10-K and
      incorporated herein by reference.10.4
            
            Note
      and Warrant Purchase Agreement dated August 21, 2008, by and among
      Commerce Energy Group, Inc., Commerce Energy, Inc. and AP
      Finance LLC, previously filed with the SEC on November 13, 2008
      as Exhibit 10.116 to Commerce Energy Group, Inc.’s Annual Report
      on Form 10-K and incorporated herein by reference.10.5
            
            First
      Amendment to Note and Warrant Purchase Agreement dated August 22,
      2008, by and among Commerce Energy Group, Inc., Commerce
      Energy, Inc. and AP Finance LLC, previously filed with the SEC
      on November 13, 2008 as Exhibit 10.117 to Commerce Energy
      Group, Inc.’s Annual Report on Form 10-K and incorporated herein
      by reference.






14






Exhibit
              Number
            
            Description


10.6
            
            Second
      Amendment to Note and Warrant Purchase Agreement dated October 23,
      2008, by and among Commerce Energy Group, Inc., Commerce
      Energy, Inc. and AP Finance LLC, previously filed with the SEC
      on November 13, 2008 as Exhibit 10.118 to Commerce Energy
      Group, Inc.’s Annual Report on Form 10-K and incorporated herein
      by reference.10.7
            
            Third
      Amendment to Note and Warrant Purchase Agreement dated October 27,
      2008 by and among Commerce Energy Group, Inc., Commerce
      Energy, Inc. and AP Finance, LLC, previously filed with the SEC
      on November 13, 2008 as Exhibit 10.119 to Commerce Energy
      Group, Inc.’s Annual Report on Form 10-K and incorporated herein
      by reference.10.8
            
            Senior
      Secured Convertible Promissory Note dated August 21, 2008 in the
      principal amount of $20,931,579 payable to AP Finance LLC, previously
      filed with the SEC on November 13, 2008 as Exhibit 10.120 to
      Commerce Energy Group, Inc.’s Annual Report on Form 10-K and
      incorporated herein by reference.10.9
            
            Senior
      Secured Convertible Promissory Note dated August 22, 2008 in the
      principal amount of $2,225,410.98 payable to AP Finance LLC,
      previously filed with the SEC on November 13, 2008 as
      Exhibit 10.121 to Commerce Energy Group, Inc.’s Annual Report on
      Form 10-K and incorporated herein by reference.10.10
            
            Discretionary
      Line of Credit Demand Note dated August 27, 2008 in the principal
      amount of $6,000,000, previously filed with the SEC on November 13,
      2008 as Exhibit 10.122 to Commerce Energy Group, Inc.’s Annual
      Report on Form 10-K and incorporated herein by
    reference.10.11
            
            Security
      Agreement dated August 21, 2008 by and among Commerce Energy
      Group, Inc., Commerce Energy, Inc. and AP Finance LLC,
      previously filed with the SEC on November 13, 2008 as
      Exhibit 10.123 to Commerce Energy Group, Inc.’s Annual Report on
      Form 10-K and incorporated herein by reference.10.12
            
            Warrant
      to Purchase Shares of Common Stock dated August 21, 2008 issued by
      Commerce Energy Group, Inc. to AP Finance LLC, previously filed
      with the SEC on November 13, 2008 as Exhibit 10.124 to Commerce
      Energy Group, Inc.’s Annual Report on Form 10-K and incorporated
      herein by reference.10.13
            
            Warrant
      to Purchase Shares of Common Stock dated August 21, 2008 issued by
      Commerce Energy Group, Inc. to Jesup & Lamont, Inc.,
      previously filed with the SEC on November 13, 2008 as
      Exhibit 10.125 to Commerce Energy Group, Inc.’s Annual Report on
      Form 10-K and incorporated herein by reference.10.14
            
            Warrant
      to Purchase Shares of Common Stock dated August 21, 2008 issued by
      Commerce Energy Group, Inc. to Bill Corbett, previously filed with
      the SEC on November 13, 2008 as Exhibit 10.126 to Commerce
      Energy Group, Inc.’s Annual Report on Form 10-K and incorporated
      herein by reference.10.15
            
            Warrant
      to Purchase Shares of Common Stock dated August 21, 2008 issued by
      Commerce Energy Group, Inc. to Lee E. Mikles Revocable Trust,
      previously filed with the SEC on November 13, 2008 as
      Exhibit 10.127 to Commerce Energy Group, Inc.’s Annual Report on
      Form 10-K and incorporated herein by reference.10.16
            
            Asset
      Purchase Agreement dated October 23, 2008 by and between Commerce
      Energy, Inc. and Ambit, L.P., previously filed with the SEC on
      October 29, 2008 as Exhibit 2.1 to Commerce Energy
      Group, Inc.’s Current Report on Form 8-K and incorporated herein
      by reference.10.17
            
            Letter
      Agreement dated November 11, 2008 by and between Commerce Energy Group,
      Inc. and Universal Energy Group Ltd., previously filed with the SEC on
      November 12, 2008 as Exhibit 99.1 to Commerce Energy Group,
      Inc.’s Current Report on Form 8-K and incorporated herein by
      reference.10.18
            
            Amendment
      No. 1 to Letter Agreement dated November 26, 2008, by and between Commerce
      Energy Group, Inc. and Universal Energy Group Ltd., previously filed with
      the SEC on November 28, 2008 as Exhibit 99.1 to Commerce Energy
      Group, Inc.’s Current Report on Form 8-K and incorporated herein by
      reference.








15





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:
      December 17,
      2008
            By:          /s/ GREGORY L.
      CRAIG
              Gregory
      L. Craig
              Chairman
      & Chief Executive Officer
              (Principal
      Executive Officer)Date: December 17,
       2008
            By:          /s/
      C. DOUGLAS MITCHELL
              C.
      Douglas Mitchell
              Chief
      Financial Officer
              (Principal
      Financial and Accounting Officer)








16





EXHIBIT
INDEX





Exhibit
              Number
            
            DescriptionFiled
      with this Report:31.1
            
            Principal
      Executive Officer Certification pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
            
            Principal
      Financial Officer Certification pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
            
            Principal
      Executive Officer Certification pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.32.2
            
            Principal
      Financial Officer Certification pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.Incorporated
      by Reference: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
            
            Second
      Amended and Restated Bylaws of Commerce Energy Group, Inc., previously
      filed with the SEC on December 17, 2007 as Exhibit 3.3 to Commerce Energy
      Group, Inc.’s Quarterly Report on Form 10-Q for the Quarterly Period Ended
      October 31, 2007 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 SEC 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 SEC 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
            
            Termination
      Agreement by and between Commerce Energy, Inc. and Tenaska Power
      Services Co. dated October 17, 2008, previously filed with the
      SEC on November 13, 2008 as Exhibit 10.91 to Commerce Energy
      Group, Inc.’s Annual Report on Form 10-K and incorporated herein
      by reference.10.2
            
            Eleventh
      Amendment to Loan and Security Agreement and Waiver by and among Commerce
      Energy Group, Inc., Commerce Energy, Inc., Wachovia Capital
      Finance Corporation (Western), as Agent and Lender, and Wells Fargo
      Foothill LLC, as Lender, dated August 21, 2008, previously filed
      with the SEC on November 13, 2008 as Exhibit 10.113 to Commerce
      Energy Group, Inc.’s Annual Report on Form 10-K and incorporated
      herein by reference.10.3
            
            Twelfth
      Amendment to Loan and Security Agreement and Waiver by and among Commerce
      Energy Group, Inc., Commerce Energy, Inc., Wachovia Capital
      Finance Corporation (Western), as Agent and Lender, and Wells Fargo
      Foothill LLC, as Lender, dated October 22, 2008, previously
      filed with the SEC on November 13, 2008 as Exhibit 10.114 to
      Commerce Energy Group, Inc.’s Annual Report on Form 10-K and
      incorporated herein by reference.10.4
            
            Note
      and Warrant Purchase Agreement dated August 21, 2008, by and among
      Commerce Energy Group, Inc., Commerce Energy, Inc. and AP
      Finance LLC, previously filed with the SEC on November 13, 2008
      as Exhibit 10.116 to Commerce Energy Group, Inc.’s Annual Report
      on Form 10-K and incorporated herein by reference.10.5
            
            First
      Amendment to Note and Warrant Purchase Agreement dated August 22,
      2008, by and among Commerce Energy Group, Inc., Commerce
      Energy, Inc. and AP Finance LLC, previously filed with the SEC
      on November 13, 2008 as Exhibit 10.117 to Commerce Energy
      Group, Inc.’s Annual Report on Form 10-K and incorporated herein
      by reference.10.6
            
            Second
      Amendment to Note and Warrant Purchase Agreement dated October 23,
      2008, by and among Commerce Energy Group, Inc., Commerce
      Energy, Inc. and AP Finance LLC, previously filed with the SEC
      on November 13, 2008 as Exhibit 10.118 to Commerce Energy
      Group, Inc.’s Annual Report on Form 10-K and incorporated herein
      by reference.













Exhibit
              Number
            
            Description


10.7
            
            Third
      Amendment to Note and Warrant Purchase Agreement dated October 27,
      2008 by and among Commerce Energy Group, Inc., Commerce
      Energy, Inc. and AP Finance, LLC, previously filed with the SEC
      on November 13, 2008 as Exhibit 10.119 to Commerce Energy
      Group, Inc.’s Annual Report on Form 10-K and incorporated herein
      by reference.10.8
            
            Senior
      Secured Convertible Promissory Note dated August 21, 2008 in the
      principal amount of $20,931,579 payable to AP Finance LLC, previously
      filed with the SEC on November 13, 2008 as Exhibit 10.120 to
      Commerce Energy Group, Inc.’s Annual Report on Form 10-K and
      incorporated herein by reference.10.9
            
            Senior
      Secured Convertible Promissory Note dated August 22, 2008 in the
      principal amount of $2,225,410.98 payable to AP Finance LLC,
      previously filed with the SEC on November 13, 2008 as
      Exhibit 10.121 to Commerce Energy Group, Inc.’s Annual Report on
      Form 10-K and incorporated herein by reference.10.10
            
            Discretionary
      Line of Credit Demand Note dated August 27, 2008 in the principal
      amount of $6,000,000, previously filed with the SEC on November 13,
      2008 as Exhibit 10.122 to Commerce Energy Group, Inc.’s Annual
      Report on Form 10-K and incorporated herein by
    reference.10.11
            
            Security
      Agreement dated August 21, 2008 by and among Commerce Energy
      Group, Inc., Commerce Energy, Inc. and AP Finance LLC,
      previously filed with the SEC on November 13, 2008 as
      Exhibit 10.123 to Commerce Energy Group, Inc.’s Annual Report on
      Form 10-K and incorporated herein by reference.10.12
            
            Warrant
      to Purchase Shares of Common Stock dated August 21, 2008 issued by
      Commerce Energy Group, Inc. to AP Finance LLC, previously filed
      with the SEC on November 13, 2008 as Exhibit 10.124 to Commerce
      Energy Group, Inc.’s Annual Report on Form 10-K and incorporated
      herein by reference.10.13
            
            Warrant
      to Purchase Shares of Common Stock dated August 21, 2008 issued by
      Commerce Energy Group, Inc. to Jesup & Lamont, Inc.,
      previously filed with the SEC on November 13, 2008 as
      Exhibit 10.125 to Commerce Energy Group, Inc.’s Annual Report on
      Form 10-K and incorporated herein by reference.10.14
            
            Warrant
      to Purchase Shares of Common Stock dated August 21, 2008 issued by
      Commerce Energy Group, Inc. to Bill Corbett, previously filed with
      the SEC on November 13, 2008 as Exhibit 10.126 to Commerce
      Energy Group, Inc.’s Annual Report on Form 10-K and incorporated
      herein by reference.10.15
            
            Warrant
      to Purchase Shares of Common Stock dated August 21, 2008 issued by
      Commerce Energy Group, Inc. to Lee E. Mikles Revocable Trust,
      previously filed with the SEC on November 13, 2008 as
      Exhibit 10.127 to Commerce Energy Group, Inc.’s Annual Report on
      Form 10-K and incorporated herein by reference.10.16
            
            Asset
      Purchase Agreement dated October 23, 2008 by and between Commerce
      Energy, Inc. and Ambit, L.P., previously filed with the SEC on
      October 29, 2008 as Exhibit 2.1 to Commerce Energy
      Group, Inc.’s Current Report on Form 8-K and incorporated herein
      by reference.10.17
            
            Letter
      Agreement dated November 11, 2008 by and between Commerce Energy Group,
      Inc. and Universal Energy Group Ltd., previously filed with the SEC on
      November 12, 2008 as Exhibit 99.1 to Commerce Energy Group,
      Inc.’s Current Report on Form 8-K and incorporated herein by
      reference.10.18
            
            Amendment
      No. 1 to Letter Agreement dated November 26, 2008, by and between Commerce
      Energy Group, Inc. and Universal Energy Group Ltd., previously filed with
      the SEC on November 28, 2008 as Exhibit 99.1 to Commerce Energy
      Group, Inc.’s Current Report on Form 8-K and incorporated herein by
      reference.


________













Exhibit
31.1





CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14(a)


PROMULGATED
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002





I,
Gregory L. Craig, Chairman and 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 October 31,
2008 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)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d–15(f)) 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;





(b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; and





(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 control 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 control 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 control over financial
reporting.





COMMERCE
      ENERGY GROUP, INC.Date:
      December 17,
      2008
            By:         /s/ GREGORY L.
      CRAIG
              Gregory
      L. Craig
              Chairman
      & Chief Executive Officer
              (Principal
      Executive Officer)














Exhibit
31.2





CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14(a)


PROMULGATED
UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002





I, C.
Douglas Mitchell, 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 October 31,
2008 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)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d–15(f)) 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;





(b)
Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles; and





(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 control 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 control 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 control over financial
reporting.





COMMERCE
      ENERGY GROUP, INC.Date:
      December 17,
      2008
            By:          /s/ C. DOUGLAS
      MITCHELL
              C.
      Douglas Mitchell
              Chief Financial Officer
              (Principal
      Financial and Accounting Officer)











Exhibit
32.1





CERTIFICATION
OF CHIEF EXECUTIVE OFFICER


PURSUANT
TO


SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002





I,
Gregory L. Craig, Chairman and Chief Executive Officer of Commerce
Energy Group, Inc. (the “Company”), certify pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. 1350, that, to my knowledge:





1.
            The
      Quarterly Report on Form 10-Q of the Company for the period ended October
      31, 2008 (the “Report”) fully complies with the requirements of Section
      13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
      and





2.
            The
      information contained in the Report fairly presents, in all material
      respects, the financial condition and results of operations of the Company
      for the period covered by the
Report.





COMMERCE
      ENERGY GROUP, INC.Date:
      December 17,
      2008
            By:          /s/ GREGORY L.
      CRAIG
              Gregory L. Craig
              Chairman
      & Chief Executive Officer
              (Principal
      Executive Officer)














Exhibit
32.2





CERTIFICATION
OF INTERIM CHIEF FINANCIAL OFFICER


PURSUANT
TO


SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002








I,
C. Douglas Mitchell, Chief Financial Officer of Commerce Energy Group,
Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, 18 U.S.C. 1350, that to my knowledge:





1.
            The
      Quarterly Report on Form 10-Q of the Company for the period ended October
      31, 2008 (the “Report”) fully complies with the requirements of Section
      13(a) or 15(d) of the Securities Exchange Act of 1934, as amended;
      and





2.
            The
      information contained in the Report fairly presents, in all material
      respects, the financial condition and results of operations of the Company
      for the period covered by the
Report.





COMMERCE
      ENERGY GROUP, INC.Date: December
      17, 2008
            By:          /s/ C. DOUGLAS
      MITCHELL
                C.
      Douglas Mitchell
                Chief Financial Officer
                (Principal
      Financial and Accounting
Officer)