##### Table of Contents



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 October 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
    
    20-0501090(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)600 Anton Boulevard, Suite 2000,Costa Mesa, California
    
    92626(Address of principal executive offices)
    
    (Zip Code)
 (714) 259-2500  (Registrants telephone number, including area code)
 Not Applicable  (Former name, former address and former fiscal year, if changed since last report)
 þ o
  o o þ
 o þ




---



##### 



COMMERCE ENERGY GROUP, INC.
 Form 10-Q
 For the Period Ended October 31, 2006
Index
 PagePart I 
    
    Financial Information
    
    
    1Item 1.
    
    Financial Statements:Condensed Consolidated Statements of Operations for the three months ended October 31, 2006 and 2005
    
    
    1Condensed Consolidated Balance Sheets as of October 31, 2006 and July 31, 2006
    
    
    2Condensed Consolidated Statements of Cash Flows for the three months ended October 31, 2006 and 2005
    
    
    3Notes to Condensed Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    18Item 4.
    
    Controls and Procedures
    
    
    18Part II 
    
    Other Information
    
    
    19Item 1.
    
    Legal Proceedings
    
    
    19Item 1A.
    
    Risk Factors
    
    
    19Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    19Item 3.
    
    Defaults upon Senior Securities
    
    
    19Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    19Item 5.
    
    Other Information
    
    
    19Item 6.
    
    Exhibits
    
    
    20Signatures
    
    
    
    
    21EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




---



##### Table of Contents



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 EndedOctober 31,2006
    
    
    2005Net revenue
    
    $
    70,507
    
    
    $
    64,368Direct energy costs
    
    
    60,451
    
    
    
    56,128Gross profit
    
    
    10,056
    
    
    
    8,240Selling and marketing expenses
    
    
    2,235
    
    
    
    698General and administrative expenses
    
    
    7,849
    
    
    
    7,609Income (loss) from operations
    
    
    (28
    )
    
    
    (67
    )Other income and expenses:Interest income, net
    
    
    412
    
    
    
    287Net income
    
    $
    384
    
    
    $
    220Income per common share:Basic and diluted
    
    $
    0.01
    
    
    $
    0.01
  1




---



##### Table of Contents



COMMERCE ENERGY GROUP, INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
 October 31, 2006
    
    
    July 31, 2006(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    8,086
    
    
    $
    22,941Accounts receivable, net
    
    
    37,524
    
    
    
    30,650Natural gas inventory
    
    
    7,267
    
    
    
    4,578Prepaid expenses and other current
    
    
    4,608
    
    
    
    6,827Total current assets
    
    
    57,485
    
    
    
    64,996Restricted cash and cash equivalent
    
    
    16,755
    
    
    
    17,117Deposits
    
    
    2,358
    
    
    
    2,506Property and equipment, net
    
    
    7,047
    
    
    
    5,866Goodwill
    
    
    4,801
    
    
    
    4,801Other intangible assets
    
    
    7,643
    
    
    
    3,790Total assets
    
    $
    96,089
    
    
    $
    99,076LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    23,578
    
    
    $
    26,876Accrued liabilities
    
    
    8,258
    
    
    
    5,867Total current liabilities
    
    
    31,836
    
    
    
    32,743Commitments and contingenciesStockholders equity:Common stock  150,000 shares authorized with
$0.001 par value; 29,632 shares issued and
outstanding at July 31, 2006 and 29,662
(unaudited) at October 31, 2006
    
    
    58,982
    
    
    
    58,849Accumulated other comprehensive income (loss)
    
    
    (326
    )
    
    
    2,271Retained earnings
    
    
    5,597
    
    
    
    5,213Total stockholders equity
    
    
    64,253
    
    
    
    66,333Total liabilities and stockholders equity
    
    $
    96,089
    
    
    $
    99,076
  2




---



##### Table of Contents



COMMERCE ENERGY GROUP, INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 Three Months EndedOctober 31,2006
    
    
    2005Cash Flows From Operating ActivitiesNet income
    
    $
    384
    
    
    $
    220Adjustments to reconcile net income to net cash used in operating activities:Depreciation
    
    
    348
    
    
    
    270Amortization
    
    
    489
    
    
    
    277Provision for doubtful accounts
    
    
    875
    
    
    
    751Stock-based compensation expense
    
    
    134
    
    
    
    231Changes in operating assets and liabilities:Accounts receivable, net
    
    
    (7,749
    )
    
    
    (472
    )Inventory
    
    
    (2,689
    )
    
    
    (3,579
    )Prepaid expenses and other current assets
    
    
    (373
    )
    
    
    (6,021
    )Accounts payable
    
    
    (3,297
    )
    
    
    (2,724
    )Accrued liabilities and other
    
    
    2,390
    
    
    
    (459
    )Net cash used in operating activities
    
    
    (9,488
    )
    
    
    (11,506
    )Cash Flows From Investing ActivitiesPurchase of property and equipment
    
    
    (1,529
    )
    
    
    (514
    )Purchase of intangible assets
    
    
    (4,218
    )
    
    
    Net cash used in investing activities
    
    
    (5,747
    )
    
    
    (514
    )Cash Flows From Financing ActivitiesCredit line commitment fee
    
    
    18
    
    
    
    Decrease (increase) in restricted cash
    
    
    362
    
    
    
    (91
    )Net cash provided by (used in) financing activities
    
    
    380
    
    
    
    (91
    )Decrease in cash and cash equivalents
    
    
    (14,855
    )
    
    
    (12,111
    )Cash and cash equivalents at beginning of period
    
    
    22,941
    
    
    
    33,344Cash and cash equivalents at end of period
    
    $
    8,086
    
    
    $
    21,233
  3




---



##### Table of Contents



COMMERCE ENERGY GROUP, INC.
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)
 Note 1. Summary of Significant Accounting Policies
 Basis of Presentation
  Preparation of Interim Condensed Consolidated Financial Statements
  Uses of Estimates
  Reclassifications
  Revenue Recognition
  Three Months EndedOctober 31,2006
    
    
    2005Retail electricity sales
    
    $
    53,407
    
    
    $
    50,088Excess electricity sales
    
    
    1,436
    
    
    
    5,350Total electricity sales
    
    
    54,843
    
    
    
    55,438Retail natural gas sales
    
    
    15,664
    
    
    
    8,930Net revenue
    
    $
    70,507
    
    
    $
    64,368
  4




---



##### Table of Contents



COMMERCE ENERGY GROUP, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)
 Stock-Based Compensation
   Three Months EndedOctober 31,2006
    
    2005Weighted-average risk-free interest rate
    
    
    4.6
    %
    
    
    3.8
    %Average expected life in years
    
    
    4.63
    
    
    
    5.68Expected dividends
    
    None
    
    NoneExpected volatility
    
    
    0.75
    
    
    
    0.83
  Options OutstandingWeighted
    
    
    WeightedNumber of
    
    
    
    
    
    
    Average
    
    
    AggregateShares
    
    
    Exercise Price
    
    
    Exercise
    
    
    Intrinsic(in Thousands)
    
    
    Per Share
    
    
    Price
    
    
    ValueOptions outstanding as of July 31, 2006
    
    
    7,744
    
    
    $
    1.00-$3.75
    
    
    $
    2.32Options cancelled
    
    
    1
    
    
    $
    3.75
    
    
    $
    3.75Options outstanding as of October 31, 2006 (1)
    
    
    7,743
    
    
    $
    1.00-$3.75
    
    
    $
    2.32
    
    
    $
    47
 
 (1)
    
    Options exercisable as of October 31, 2006 were 7,448 with weighted average
exercise price of $2.35 and an aggregate intrinsic value of $47.  Employee Stock Purchase Plan
  5




---



##### Table of Contents



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
  Comprehensive Income (Loss)
   Three Months EndedOctober 31, 2006
    
    
    October 31, 2005Net income
    
    
    384
    
    
    
    220Changes in fair value of cash flow hedges
    
    
    (2,597
    )
    
    
    (177
    )Comprehensive income (loss)
    
    $
    (2,213
    )
    
    $
    43
  Segment Reporting
  6




---



##### Table of Contents



COMMERCE ENERGY GROUP, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)
 Accounts Receivable, Net
  October 31,
    
    
    July 31,2006
    
    
    2006Billed
    
    $
    28,326
    
    
    $
    21,768Unbilled
    
    
    14,099
    
    
    
    13,382$
    42,425
    
    
    $
    35,150Less allowance for doubtful accounts
    
    
    (4,901
    )
    
    
    (4,500
    )Accounts receivable, net
    
    $
    37,524
    
    
    $
    30,650
 Inventory
  Note 2. Basic and Diluted Income per Common Share
   Three Months EndedOctober 31,2006
    
    
    2005Numerator:Net income
    
    $
    384
    
    
    $
    220Net income applicable to common stock basic and diluted
    
    $
    384
    
    
    $
    220Denominator:Weighted-average outstanding common shares  basic
    
    
    29,639
    
    
    
    31,439Effect of stock options
    
    
    26
    
    
    
    280Weighted-average outstanding common shares  diluted
    
    
    29,665
    
    
    
    31,719
 Note 3. Market and Regulatory
   7




---



##### Table of Contents



COMMERCE ENERGY GROUP, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)
    Note 4. HESCO Customer Acquisition
   Note 5. Contingencies
 Litigation
   8




---



##### Table of Contents



COMMERCE ENERGY GROUP, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)
   Settlement Agreements with Former Officers
   Note 6. Derivative Financial Instruments
    October 31,
    
    
    July 31,2006
    
    
    2006Current assets
    
    $
    
    
    
    $
    1,817Current liabilities
    
    
    (1,439
    )
    
    
    (362
    )Deferred gains
    
    
    651
    
    
    
    816Hedge ineffectiveness
    
    
    462
    
    
    
    Other comprehensive income (loss)
    
    $
    (326
    )
    
    $
    2,271
 9




---



##### Table of Contents



COMMERCE ENERGY GROUP, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)
  Note 7. Credit Facility
     10




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
    Our Company
     11




---



##### Table of Contents



Significant Customer Acquisitions
 ACN Energy Acquisition
  HESCO Acquisition
  Market and Regulatory
     12




---



##### Table of Contents



Results of Operations
 Three Months Ended October 31, 2006 Compared to Three Months Ended October 31, 2005
  Three Months Ended October 31,2006
    
    

2005Dollars
    
    
    % Revenue
    
    
    Dollars
    
    
    % RevenueRetail electricity sales
    
    $
    53,407
    
    
    
    76
    %
    
    $
    50,088
    
    
    
    78
    %Natural gas sales
    
    
    15,664
    
    
    
    22
    %
    
    
    8,930
    
    
    
    14
    %Excess electricity sales
    
    
    1,436
    
    
    
    2
    %
    
    
    5,350
    
    
    
    8
    %Net revenue
    
    
    70,507
    
    
    
    100
    %
    
    
    64,368
    
    
    
    100
    %Direct energy costs
    
    
    60,451
    
    
    
    86
    %
    
    
    56,128
    
    
    
    87
    %Gross profit
    
    
    10,056
    
    
    
    14
    %
    
    
    8,240
    
    
    
    13
    %Selling and marketing expenses
    
    
    2,235
    
    
    
    3
    %
    
    
    698
    
    
    
    1
    %General and administrative expenses
    
    
    7,849
    
    
    
    11
    %
    
    
    7,609
    
    
    
    12
    %Income (loss) from operations
    
    $
    (28
    )
    
    
    
    
    
    $
    (67
    )
    
    
    
 Net revenue
  Three Months Ended October 31,2006
    
    

2005Dollars
    
    
    % Revenue
    
    
    Dollars
    
    
    % RevenueRetail Electricity Sales:California
    
    $
    17,283
    
    
    
    25
    %
    
    $
    17,683
    
    
    
    27
    %Texas
    
    
    16,730
    
    
    
    24
    %
    
    
    6,196
    
    
    
    10
    %Pennsylvania/New Jersey
    
    
    14,214
    
    
    
    20
    %
    
    
    17,913
    
    
    
    28
    %Maryland
    
    
    1,489
    
    
    
    2
    %
    
    
    
    
    
    
    Michigan and Others
    
    
    3,691
    
    
    
    5
    %
    
    
    8,296
    
    
    
    13
    %Total Retail Electricity Sales
    
    
    53,407
    
    
    
    76
    %
    
    
    50,088
    
    
    
    78
    %Natural Gas Sales:California
    
    
    4,022
    
    
    
    6
    %
    
    
    4,426
    
    
    
    7
    %Ohio
    
    
    3,004
    
    
    
    4
    %
    
    
    2,621
    
    
    
    4
    %Georgia
    
    
    987
    
    
    
    1
    %
    
    
    1,162
    
    
    
    2
    %HESCO Customers
    
    
    7,257
    
    
    
    10
    %
    
    
    
    
    
    
    All Others
    
    
    394
    
    
    
    1
    %
    
    
    721
    
    
    
    1
    %Total Natural Gas Sales
    
    
    15,664
    
    
    
    22
    %
    
    
    8,930
    
    
    
    14
    %Excess Electricity Sales
    
    
    1,436
    
    
    
    2
    %
    
    
    5,350
    
    
    
    8
    %Net Revenue
    
    $
    70,507
    
    
    
    100
    %
    
    $
    64,368
    
    
    
    100
    %
  13




---



##### Table of Contents



Gross Profit
  Direct Energy Costs
   Operating Expenses
  14




---



##### Table of Contents



Income Taxes
  Liquidity and Capital Resources
 (Dollars in Thousands)October 31, 2006
    July 31, 2006Cash and cash equivalents
    
    $
    8,086
    
    
    $
    22,941Working capital
    
    
    25,649
    
    
    
    32,253Current ratio (current assets to current liabilities)
    
    
    1.8:1.0
    
    
    
    2.0:1.0Restricted cash
    
    
    16,755
    
    
    
    17,117Short term borrowings
    
    
    
    
    
    
    Letters of credit outstanding
    
    
    22,410
    
    
    
    17,600
   Credit Facility
   15




---



##### Table of Contents



Consolidated Cash Flows
  Three Months EndedOctober 31, 2006
    
    
    October 31, 2005Net cash provided by (used in):Operating activities
    
    $
    (9,488
    )
    
    $
    (11,506
    )Investing activities
    
    
    (5,747
    )
    
    
    (514
    )Financing activities
    
    
    380
    
    
    
    (91
    )Net increase (decrease) in cash and cash equivalents
    
    $
    (14,855
    )
    
    $
    (12,111
    )
   Contractual Obligations
  Critical Accounting Policies and Estimates
  16




---



##### Table of Contents




    
    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 under our forward physical delivery contracts is recorded as
direct energy costs when received from our suppliers. We use financial derivative instruments
(such as swaps, options and futures) as an effective way of assisting in managing our price
risk in energy supply procurement. For forward or future contracts that do not meet the
qualifying criteria for normal purchase, normal sale accounting treatment, we elect cash flow
hedge accounting, where appropriate.We also utilize other financial derivatives, primarily swaps, options and futures to hedge
our commodity price risks. Certain derivative instruments, which are designated as economic
hedges or as speculative, do not qualify for hedge accounting treatment and require current
period mark to market accounting in accordance with SFAS No. 133, with fair market value being
used to determine the related income or expense that is recorded each quarter in the statement of
operations. As a result, the changes in fair value of derivatives that do not meet the
requirements of normal purchase and normal sale accounting treatment or cash flow hedge
accounting are recorded in operating income (loss) and as a current or long-term derivative asset
or liability. To the extent that the hedges are not effective, the ineffective portion of the
changes in fair market value is recorded currently in direct energy costs. The subsequent changes
in the fair value of these contracts could result in operating income (loss) volatility as the
fair value of the changes are recorded on a net basis in direct energy costs in our consolidated
statement of operations for each period.As a result of a sale on January 28, 2005 of two significant electricity forward physical
delivery contracts (on a net cash settlement basis) back to the original supplier, the normal
purchase and normal sale exemption under SFAS No. 133 was no longer available for our
Pennsylvania market (PJM-ISO). Accordingly, for the period from February 2005 through July 2006,
we designated forward physical delivery contracts entered into for our Pennsylvania electricity
market (PJM-ISO) as cash flow hedges, whereby market to market accounting gains or losses were
deferred and reported as a component of Other Comprehensive Income (Loss) until the time of
physical delivery. Effective August 1, 2006, the normal purchase and normal sale exemption has
been reinstated for the PJM-ISO market.
    
    Utility and independent system operator Included in direct energy costs, along with the
cost of energy that we purchase, are scheduling costs, Independent System Operator, or ISO,
fees, interstate pipeline costs and utility service charges. The actual charges and certain
energy costs are not finalized until subsequent settlement processes are performed for all
distribution system participants. Prior to the completion of settlements (which may take from
one to several months), we estimate these costs based on historical trends and preliminary
settlement information. The historical trends and preliminary information may differ from
actual information resulting in the need to adjust previous estimates.
    
    Allowance for doubtful accounts We maintain allowances for doubtful accounts for estimated
losses resulting from non-payment of customer billings. If the financial conditions of certain
of our customers were to deteriorate, resulting in an impairment of their ability to make
payments, additional allowances may be required.
    
    Net revenue and unbilled receivables Our customers are billed monthly at various dates
throughout the month. Unbilled receivables represent the estimated sale amount for power
delivered to a customer at the end of a reporting period, but not yet billed. Unbilled
receivables from sales are estimated based upon the amount of power delivered, but not yet
billed, multiplied by the estimated sales price per unit.
    
    Inventory Inventory consists of natural gas in storage as required
by state regulators and contracted obligations under customer choice
programs. Inventory is stated at the lower of cost or market.
    
    Customer Acquisition Cost The Company pays an upfront fee to certain
third party vendors for the acquisition of new customer contracts.
These customer acquisition costs related to specific new customers
contracts acquired are deferred and amortized over the life of the
initial customer contract, typically one year.
 17




---



##### Table of Contents




    
    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 about current or future
litigation or other contingencies becomes available, management will
assess whether such information warrants the recording of additional
expense relating to our contingencies. Such additional expense could
potentially have a material adverse impact on our results of
operations and financial position.
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk.
   
 Item 4. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Control Over Financial Reporting
  18




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
   
 Item 1A. Risk Factors.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 .
 
 Item 3. Defaults Upon Senior Securities.
 .
 
 Item 4. Submission of Matters to a Vote of Security Holders.
 .
 
 Item 5. Other Information.
 .
 19




---



##### Table of Contents



Item 6. Exhibits.
  ExhibitNumber
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of Commerce Energy Group, Inc., previously filed with the SEC on
July 6, 2004 as Exhibit 3.3 to Commerce Energy Group, Inc.s Registration Statement on Form 8-A and incorporated
herein by reference.3.2
    
    Certificate of Designation of Series A Junior Participating Preferred Stock of Commerce Energy Group, Inc. dated
July 1, 2004 previously filed with the SEC on July 6, 2004 as Exhibit 3.4 to Commerce Energy Group, Inc.s
Registration Statement on Form 8-A and incorporated herein by reference.3.3
    
    Amended and Restated Bylaws of Commerce Energy Group, Inc., previously filed with the SEC on July 6, 2004 as
Exhibit 3.6 to Commerce Energy Group, Inc.s Registration Statement on Form 8-A and incorporated herein by
reference.10.1
    
    First Amendment to Loan and Security Agreement and Waiver dated September 20, 2006 among Commerce Energy Group,
Inc., Commerce Energy, Inc., Wachovia Capital Finance Corporation (Western) and The CIT Group/Business Credit,
Inc., previously filed with the Commission on September 26, 2006 as Exhibit 99.1 to Commerce Energy Group, Inc.s
Current Report on Form 8-K and incorporated herein by reference.10.2
    
    Second Amendment to Loan and Security Agreement and Waiver dated October 26, 2006 among Commerce Energy Group,
Inc., Commerce Energy, Inc., Wachovia Capital Finance Corporation (Western) and The CIT Group/Business Credit,
Inc., previously filed with the Commission on October 30, 2006 as Exhibit 10.91 to Commerce Energy Group, Inc.s
Annual Report on Form 10-K and incorporated herein by reference.10.3
    
    Asset Purchase Agreement dated September 20, 2006 between Houston Energy Services Company, L.L.C. and Commerce
Energy, Inc., previously filed with the Commission on September 26, 2006 as Exhibit 2.1 to Commerce Energy Group,
Inc.s Current Report on Form 8-K and incorporated herein by reference.10.4
    
    Transition Services Agreement dated September 20, 2006 among Commerce Energy, Inc. and Houston Energy Services
Company, L.L.C., previously filed with the Commission on September 26, 2006 as Exhibit 2.2 to Commerce Energy
Group, Inc.s Current Report on Form 8-K and incorporated herein by reference.10.5
    
    Guaranty Agreement dated September 20, 2006 among Commerce Energy, Inc., Thomas L. Goudie, James Bujnoch, Jr.,
Gary Hollowell, Dustin Roach, Steve Loy and Arnold Perez, previously filed with the Commission on September 26,
2006 as Exhibit 2.3 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.
 20




---



##### Table of Contents



SIGNATURES
  COMMERCE ENERGY GROUP, INC.Date: December 14, 2006
    
    By:
    
    /s/ STEVEN S. BOSSSteven S. BossChief Executive Officer(Principal Executive Officer)Date: December 14, 2006
    
    By:
    
    /s/ LAWRENCE CLAYTON, JR.Lawrence Clayton, Jr.Chief Financial Officer(Principal Financial Officer)
 21




---



##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation of Commerce Energy Group, Inc., previously filed with the SEC on
July 6, 2004 as Exhibit 3.3 to Commerce Energy Group, Inc.s Registration Statement on Form 8-A and incorporated
herein by reference.3.2
    
    Certificate of Designation of Series A Junior Participating Preferred Stock of Commerce Energy Group, Inc. dated
July 1, 2004 previously filed with the SEC on July 6, 2004 as Exhibit 3.4 to Commerce Energy Group, Inc.s
Registration Statement on Form 8-A and incorporated herein by reference.3.3
    
    Amended and Restated Bylaws of Commerce Energy Group, Inc., previously filed with the SEC on July 6, 2004 as
Exhibit 3.6 to Commerce Energy Group, Inc.s Registration Statement on Form 8-A and incorporated herein by
reference.10.1
    
    First Amendment to Loan and Security Agreement and Waiver dated September 20, 2006 among Commerce Energy Group,
Inc., Commerce Energy, Inc., Wachovia Capital Finance Corporation (Western) and The CIT Group/Business Credit,
Inc., previously filed with the Commission on September 26, 2006 as Exhibit 99.1 to Commerce Energy Group, Inc.s
Current Report on Form 8-K and incorporated herein by reference.10.2
    
    Second Amendment to Loan and Security Agreement and Waiver dated October 26, 2006 among Commerce Energy Group,
Inc., Commerce Energy, Inc., Wachovia Capital Finance Corporation (Western) and The CIT Group/Business Credit,
Inc., previously filed with the Commission on October 30, 2006 as Exhibit 10.91 to Commerce Energy Group, Inc.s
Annual Report on Form 10-K and incorporated herein by reference.10.3
    
    Asset Purchase Agreement dated September 20, 2006 between Houston Energy Services Company, L.L.C. and Commerce
Energy, Inc., previously filed with the Commission on September 26, 2006 as Exhibit 2.1 to Commerce Energy Group,
Inc.s Current Report on Form 8-K and incorporated herein by reference.10.4
    
    Transition Services Agreement dated September 20, 2006 among Commerce Energy, Inc. and Houston Energy Services
Company, L.L.C., previously filed with the Commission on September 26, 2006 as Exhibit 2.2 to Commerce Energy
Group, Inc.s Current Report on Form 8-K and incorporated herein by reference.10.5
    
    Guaranty Agreement dated September 20, 2006 among Commerce Energy, Inc., Thomas L. Goudie, James Bujnoch, Jr.,
Gary Hollowell, Dustin Roach, Steve Loy and Arnold Perez, previously filed with the Commission on September 26,
2006 as Exhibit 2.3 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.
 22