Document:

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                                                                    EXHIBIT 10.6

                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

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

                                   ----------

                                   AWARD NO. 1

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

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

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

<TABLE>
<S>                                   <C>
Name of Participant:                  ERIK A. LOPEZ, SR.

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

                                      [X]  Non-Incentive Stock Option(2)

Number of Shares subject to Option:   45,000

Option Exercise Price per Share:      $2.56

Grant Date:                           March 27, 2007

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

                                      [X]  Not allowed.
</TABLE>

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

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

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

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

               [ ]  ___% on Grant Date.

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

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

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

                   [ ]  10 years after Grant Date

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

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

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

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

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

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

5. MANNER OF EXERCISE. The Option shall be exercised in the manner set forth in
the Plan, using the exercise form attached hereto as Exhibit C. The amount of
Shares for which the Option may be exercised is cumulative; that is, if you fail
to exercise the Option for all of the Shares vested under the Option during any
period set forth above, then any Shares subject to the Option that are not
exercised during such period may be exercised during any subsequent period,
until the expiration or

<PAGE>

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

termination of the Option pursuant to Sections 2 and 7 of this Award Agreement
and the terms of the Plan. Fractional Shares may not be purchased.

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

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

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

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

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

          (c) Non-Solicitation of Customers. The Participant recognizes that by
virtue of his or her employment with the Company Group he or she will be
introduced to and involved in the

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

21. EMPLOYMENT AGREEMENT PROVISION By executing this Award, you acknowledge and
agree that your rights upon a termination of employment before full vesting of
this Award will be determined under Section 5 of your employment agreement with
the Company dated as of March 26, 2007.

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

<PAGE>

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

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

                                        COMMERCE ENERGY GROUP, INC.

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

                                        PARTICIPANT

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

                                        By: /S/ ERIK A. LOPEZ, SR.
                                            ------------------------------------
                                        Name of Participant: Erik A. Lopez, Sr.

<PAGE>

                                                                       EXHIBIT A

                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

1. ESTABLISHMENT, PURPOSE, AND TYPES OF AWARDS

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

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

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

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

2. DEFINED TERMS

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

3. SHARES SUBJECT TO THE PLAN

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

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

<PAGE>

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

4. ADMINISTRATION

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

5. ELIGIBILITY

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

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

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

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

6. OPTION AWARDS

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Commerce Energy Group, Inc.
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Page 6

7. SHARE APPRECIATE RIGHTS (SARS)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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Commerce Energy Group, Inc.
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Page 8

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

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

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

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

9. DEFERRED SHARE UNITS

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

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

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

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

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

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

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

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

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

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

10. PERFORMANCE AWARDS

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

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

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

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

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

     (d) Definitions.

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

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

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2006 Stock Incentive Plan
Page 11

     Performance Period and from Participant to Participant, and may be
     established on a stand-alone basis, in tandem or in the alternative.

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

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

11. TAXES

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

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

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

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

     (e) Income Taxes and Deferred Compensation. Participants are solely
responsible and liable for the satisfaction of all taxes and penalties that may
arise in connection with Awards (including any taxes arising under Section 409A
of the Code), and the Company shall not have any obligation to indemnify or
otherwise hold any Participant harmless from any or all of such taxes. The
Committee shall have the discretion to organize any deferral program, to require
deferral election forms, and to grant or to unilaterally modify any Award in a
manner that (i) conforms with

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Commerce Energy Group, Inc.
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Page 12

the requirements of Section 409A of the Code with respect to compensation that
is deferred and that vests after December 31, 2004, (ii) that voids any
Participant election to the extent it would violate Section 409A of the Code,
and (iii) for any distribution election that would violate Section 409A of the
Code, to make distributions pursuant to the Award at the earliest to occur of a
distribution event that is allowable under Section 409A of the Code or any
distribution event that is both allowable under Section 409A of the Code and is
elected by the Participant, subject to any valid second election to defer,
provided that the Committee permits second elections to defer in accordance with
Section 409A(a)(4)(C). The Committee shall have the sole discretion to interpret
the requirements of the Code, including Section 409A, for purposes of the Plan
and all Awards.

12. NON-TRANSFERABILITY OF AWARDS

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

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

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

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

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

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

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Page 13

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

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

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

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

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

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

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

14. TIME OF GRANTING AWARDS.

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

15. MODIFICATION OF AWARDS AND SUBSTITUTION OF OPTIONS.

     (a) Modification, Extension, and Renewal of Awards. Within the limitations
of the Plan, the Committee may modify an Award to accelerate the rate at which
an Option or SAR may be exercised (including without limitation permitting an
Option or SAR to be exercised in full without regard to the installment or
vesting provisions of the applicable Award Agreement or whether the Option or
SAR is at the time exercisable, to the extent it has not previously been
exercised), to accelerate the vesting of any Award, to extend or renew
outstanding Awards or to accept the cancellation of outstanding Awards to the
extent not previously exercised. However, the Committee may not cancel an
outstanding option that is underwater for the purpose of reissuing the option to
the participant at a lower exercise price or granting a replacement award of a
different type. Notwithstanding the foregoing provision,

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

no modification of an outstanding Award shall materially and adversely affect
such Participant's rights thereunder, unless either the Participant provides
written consent or there is an express Plan provision permitting the Committee
to act unilaterally to make the modification.

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

16. TERM OF PLAN.

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

17. AMENDMENT AND TERMINATION OF THE PLAN.

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

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

18. CONDITIONS UPON ISSUANCE OF SHARES.

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

19. RESERVATION OF SHARES.

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

20. EFFECTIVE DATE.

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

21. CONTROLLING LAW.

     All disputes relating to or arising from the Plan shall be governed by the
internal substantive laws (and not the laws of conflicts of laws) of the State
of Delaware, to the extent not preempted by United States federal law. If any

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Commerce Energy Group, Inc.
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Page 15

provision of this Plan is held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions shall continue to be fully
effective.

22. LAWS AND REGULATIONS.

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

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

23. NO SHAREHOLDER RIGHTS.

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

24. NO EMPLOYMENT RIGHTS.

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

25. TERMINATION, RESCISSION AND RECAPTURE.

     (a) Each Award under the Plan is intended to align the Participant's
long-term interest with those of the Company. If the Participant engages in
certain activities discussed below, either during employment or after employment
with the Company terminates for any reason, the Participant is acting contrary
to the long-term interests of the Company. Accordingly, except as otherwise
expressly provided in the Award Agreement, the Company may terminate any
outstanding, unexercised, unexpired, unpaid, or deferred Awards ("Termination"),
rescind any exercise, payment or delivery pursuant to the Award ("Rescission"),
or recapture any Common Stock (whether restricted or unrestricted) or proceeds
from the Participant's sale of Shares issued pursuant to the Award

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

("Recapture"), if the Participant does not comply with the conditions of
subsections (b) and (c) hereof (collectively, the "Conditions").

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

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

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

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

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

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

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Commerce Energy Group, Inc.
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Page 17

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

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

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

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Commerce Energy Group, Inc.
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Page 18

                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                   ----------

                             APPENDIX A: DEFINITIONS

                                   ----------

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

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

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

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

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

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

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

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

     "CHANGE IN CONTROL" means any of the following:

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

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Commerce Energy Group, Inc.
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Page 19

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                                                       EXHIBIT B

MEMORANDUM

                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                  COMMON STOCK
                               ($0.001 PAR VALUE)

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

                                   ----------

                   The date of this Memorandum is May 8, 2006.

                                   ----------

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

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

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

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

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

                                     GENERAL

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

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

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

                            2006 STOCK INCENTIVE PLAN

1. ESTABLISHMENT, PURPOSE, AND TYPES OF AWARDS

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

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

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

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

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

2. DEFINED TERMS

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

3. SHARES SUBJECT TO THE PLAN

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

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

4. ADMINISTRATION

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

5. ELIGIBILITY

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

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

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

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

6. OPTION AWARDS

     (a) Types; Documentation. The Committee may in its discretion grant ISOs to
any Employee and Non-ISOs to any Eligible Person, and shall evidence any such
grants in an Award Agreement that is

<PAGE>

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

     year following such termination to the extent the Participant was entitled
     to exercise such Option at the date of such termination.

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

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

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

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

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

7. SHARE APPRECIATE RIGHTS (SARS)

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

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

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

          (iii) Limited SARs. The Committee may grant SARs exercisable only upon
     or in respect of a Change in Control or any other specified event, and such
     limited SARs may relate to or operate in tandem or combination with or
     substitution for Options or other SARs, or on a stand-alone basis, and may
     be payable in cash or Shares based on the spread between the exercise price
     of the SAR, and (A)

<PAGE>

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

     a price based upon or equal to the Fair Market Value of the Shares during a
     specified period, at a specified time within a specified period before,
     after or including the date of such event, or (B) a price related to
     consideration payable to Company's shareholders generally in connection
     with the event.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

vested Restricted Share Unit), unless an Award Agreement provides otherwise. No
fractional shares shall be distributed, and cash shall be paid in lieu thereof.

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

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

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

9. DEFERRED SHARE UNITS

     (a) Elections to Defer. The Committee may permit any Eligible Person who is
a Director, Consultant or member of a select group of management or highly
compensated employees (within the meaning of the Code) to irrevocably elect, on
a form provided by and acceptable to the Committee (the "Election Form"), to
forego the receipt of cash or other compensation (including the Shares
deliverable pursuant to any Award other than Restricted Shares for which a
Section 83(b) Election has been made), and in lieu thereof to have the Company
credit to an internal Plan account (the "Account") a number of deferred share
units ("Deferred Share Units") having a Fair Market Value equal to the Shares
and other compensation deferred. These credits will be made at the end of each
calendar month during which compensation is deferred. Each Election Form shall
take effect on the first day of the next calendar year (or on the first day of
the next calendar month in the case of an initial election by a Participant who
first becomes eligible to defer hereunder) after its delivery to the Company,
subject to Section 8(g) regarding deferral of Restricted Shares and Restricted
Share Units and to Section 10(e) regarding deferral of Performance Awards,
unless the Company sends the Participant a written notice explaining why the
Election Form is invalid within five business days after the Company receives
it. Notwithstanding the foregoing sentence: (i) Election

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

Forms shall be ineffective with respect to any compensation that a Participant
earns before the date on which the Company receives the Election Form, and (ii)
the Committee may unilaterally make awards in the form of Deferred Share Units,
regardless of whether or not the Participant foregoes other compensation.

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

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

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

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

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

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

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

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

of the purpose and amount of the need, and may establish such application or
other procedures as it deems appropriate.

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

10. PERFORMANCE AWARDS

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

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

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

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

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

year or years not earlier than, and only to the extent that, the Participant is
either not receiving compensation in excess of these limits for a Performance
Period, or is not subject to the restrictions set forth under Section 162(b) of
the Code.

(d) Definitions.

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

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

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

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

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

11. TAXES

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

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

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

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

     (e) Income Taxes and Deferred Compensation. Participants are solely
responsible and liable for the satisfaction of all taxes and penalties that may
arise in connection with Awards (including any taxes arising under Section 409A
of the Code), and the Company shall not have any obligation to indemnify or
otherwise hold any Participant harmless from any or all of such taxes. The
Committee shall have the discretion to organize any deferral program, to require
deferral election forms, and to grant or to unilaterally modify any Award in a
manner that (i) conforms with the requirements of Section 409A of the Code with
respect to compensation that is deferred and that vests after December 31, 2004,
(ii) that voids any Participant election to the extent it would violate Section
409A of the Code, and (iii) for any distribution election that would violate
Section 409A of the Code, to make distributions pursuant to the Award at the
earliest to occur of a distribution event that is allowable under Section 409A
of the Code or any distribution event that is both allowable under Section 409A
of the Code and is elected by the Participant, subject to any valid second
election to defer, provided that the Committee permits second elections to defer
in accordance with Section 409A(a)(4)(C). The Committee shall have the sole
discretion to interpret the requirements of the Code, including Section 409A,
for purposes of the Plan and all Awards.

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

12. NON-TRANSFERABILITY OF AWARDS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

14. TIME OF GRANTING AWARDS.

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

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

15. MODIFICATION OF AWARDS AND SUBSTITUTION OF OPTIONS.

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

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

16. TERM OF PLAN.

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

17. AMENDMENT AND TERMINATION OF THE PLAN.

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

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

18. CONDITIONS UPON ISSUANCE OF SHARES.

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

<PAGE>

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

19. RESERVATION OF SHARES.

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

20. EFFECTIVE DATE.

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

21. CONTROLLING LAW.

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

22. LAWS AND REGULATIONS.

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

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

23. NO SHAREHOLDER RIGHTS.

     Neither a Participant nor any transferee of a Participant shall have any
rights as a shareholder of the Company with respect to any Shares underlying any
Award until the date of issuance of a share certificate

<PAGE>

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

to a Participant or a transferee of a Participant for such Shares in accordance
with the Company's governing instruments and Applicable Law. Prior to the
issuance of Shares pursuant to an Award, a Participant shall not have the right
to vote or to receive dividends or any other rights as a shareholder with
respect to the Shares underlying the Award, notwithstanding its exercise in the
case of Options and SARs. No adjustment will be made for a dividend or other
right that is determined based on a record date prior to the date the stock
certificate is issued, except as otherwise specifically provided for in this
Plan.

24. NO EMPLOYMENT RIGHTS.

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

25. TERMINATION, RESCISSION AND RECAPTURE.

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

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

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

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

     (e) If the Company determines, in its sole and absolute discretion, that
(i) a Participant has violated any of the Conditions or (ii) during his or her
Continuous Service, or within one year after its termination

<PAGE>

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

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

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

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

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

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

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

<PAGE>

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

                           COMMERCE ENERGY GROUP, INC.

                            2006 STOCK INCENTIVE PLAN

                                   ----------

                             APPENDIX A: DEFINITIONS

                                   ----------

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

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

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

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

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

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

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

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

<PAGE>

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

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

     "CHANGE IN CONTROL" means any of the following:

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

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

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

<PAGE>

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

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

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

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

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

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

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

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

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

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

                         FEDERAL INCOME TAX CONSEQUENCES

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

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

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

<PAGE>

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

exceeded the exercise price for the ISO and (b) any remaining amount realized on
disposition (except for certain "wash" sales, gifts or sales to related persons)
will be characterized as capital gain or loss.

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

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

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

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

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

          Restricted Shares, Restricted Share Units, Deferred Share Units,
Performance Awards, and Unrestricted Shares. In general, a participant will not
recognize income at the time of grant of restricted shares, restricted share
units, deferred share units, or performance awards, unless the participant
elects with respect to restricted shares or restricted share units to accelerate
income taxation to the date of the award pursuant to an election under Section
83(b) of the Code (a "Section 83(b) Election"). In this event, a participant
would recognize ordinary income equal to the excess of the market value of the
restricted shares over any amount the participant pays

<PAGE>

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

for them (in which case subsequent gain or loss would be capital in nature). In
the absence of an election to accelerate income taxation to the date of an
award, a participant must recognize taxable compensation income equal to the
value of any cash or unrestricted shares that the participant receives. The same
tax consequences apply to performance awards and awards of unrestricted shares.

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

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

                 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

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

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

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

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

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

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

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

               -    The Registrant's Current Reports on Form 8-K, as filed with
                    the Commission on August 2, 2005, August 5, 2005, August 30,
                    2005, September 30, 2005, October 13, 2005, October 31,
                    2005, November 14, 2005, November 17, 2005, November 23,
                    2005, December 2, 2005, December 6, 2005, December 8, 2005,
                    December 15, 2005 (but specifically not incorporating by
                    reference herein the Form 8-K filed on December 15, 2005
                    announcing the Company's earnings for the quarter ended
                    October 31, 2005), February 1, 2006, March 2, 2006 and April
                    18, 2006;

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

<PAGE>

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

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

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

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

                      USE OF PROCEEDS, TAX WITHHOLDING AND
                                    NO LIENS

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

                             ADDITIONAL INFORMATION

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

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

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

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

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

<PAGE>

                                                                       EXHIBIT C

                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

                FORM OF EXERCISE OF STOCK OPTION AWARD AGREEMENT

                                   ----------

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

Dear Sir or Madam:

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

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

     $____________   in cash or check

     $____________   in the form of ____ shares of Common Stock, valued at

                     $___________ per share

     $____________   TOTAL

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

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

Name: ________________________________________________________________________

Address: _____________________________________________________________________

Social Security Number _______________________________________________________

                                        Very truly yours,

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

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

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

<PAGE>

                                                                       EXHIBIT D

                           COMMERCE ENERGY GROUP, INC.
                            2006 STOCK INCENTIVE PLAN

                                   ----------

                           DESIGNATION OF BENEFICIARY

                                   ----------

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

             Name of Beneficiary: _______________________________________

             Address:             _______________________________________

                                  _______________________________________

                                  _______________________________________

             Social Security No.: _______________________________________

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

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

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

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

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

                                        By:
                                            ------------------------------------
                                            [Recipient Name]

Sworn to before me this
____ day of ____________, 200_

-------------------------------------
Notary Public

County of
          ---------------------------
State of
         ----------------------------Exhibit 10.7

 

EXHIBIT
10.7

COMMERCE ENERGY GROUP, INC.

BONUS PROGRAM

 

Plan Document

 

As Amended by First Amendment

Adopted March 27, 2007

 

 

COMMERCE ENERGY GROUP, INC.

BONUS PROGRAM

 

Plan Document

 

ARTICLE I

PURPOSE OF THE PLAN

The Commerce Energy Group, Inc. (the “Company”) established this Commerce Energy Group, Inc. Bonus
Program (the “Plan”) to provide employees with an increased awareness and ongoing interest in the
direction of the Company. The Plan is designed to ensure that employees are appropriately awarded
for both corporate and individual performance.

ARTICLE II

DEFINITIONS

	2.1	 	“Board” shall mean the Board of Directors of the Company.
	 
	2.2	 	“Bonus” shall mean the amount payable to a Participant under the Plan.
	 
	2.3	 	“Bonus Group” shall mean the Executive Team, the Management Team or the Staff Team,
or any or all of them, as established and comprised of in the Committee’s sole discretion.
	 
	2.4	 	“Bonus Pool” shall mean discretionary funds established by the Committee pursuant to
Sections 4.2(a)(i) and 4.2(a)(vi) herein.
	 
	2.5	 	“Committee” shall mean the compensation committee of the Board.
	 
	2.6	 	“Contractor” shall mean an individual who provides services to the Company, but is
not employed by the Company.
	 
	2.7	 	“Earned Bonus Percentage” shall mean the portion of the Potential Bonus Percentage
that a Participant may receive based on the Committee’s evaluation and assessment of the
Qualitative Individual Measures set forth in Section 4.2(c) herein.
	 
	2.8	 	“Executive Team” shall mean the executives responsible for the governance of the
Company who are designated as Executive Team members in the Committee’s sole discretion.
	 
	2.9	 	“Fiscal Year” shall mean the period commencing August 1st and ending July 31st.

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	2.10	 	“Management Team” shall mean the managers who are responsible for the operations of
the departments and functional units of the Company and who are designated as Management Team
members in the Committee’s sole discretion.

	2.11	 	“Net Income” shall mean the Company’s net income from operations, including interest
income and expense, for any Fiscal Year after bonus accruals under this Plan are deducted.

	2.12	 	“Participant” shall mean the employees of the Company eligible to receive a Bonus
under the Plan, pursuant to Article III.

	2.13	 	“Part-Time Employee” shall mean an employee who is customarily employed by the
Company for an average of fewer than 20 hours per week.

	2.14	 	“Potential Bonus Percentage” shall mean the maximum amount of Bonus, expressed as a
percentage of a Participant’s base salary, that is potentially payable to the Participant
under the Plan based on the attainment of the Quantitative Company Measures set forth in
Section 4.2(a) herein.

ARTICLE III

ELIGIBILITY FOR PARTICIPATION

	3.1	 	CONDITIONS FOR BECOMING AN ELIGIBLE PARTICIPANT. Conditions for becoming an eligible
participant are met upon the commencement of full-time employment within the first nine months
(August 1 through April 30) of the Fiscal Year, subject to the limitation set forth in Section
4.3(a). Employees who participate in one or more of the Company’s commission incentive
programs are eligible to participate in this Plan, subject to the limitation set forth in
Section 4.3 herein.

	3.2	 	EXCLUDED EMPLOYEES. Part-Time Employees and Contractors are not eligible to participate in
this Plan.

ARTICLE IV

PAYMENTS

	4.1	 	AUTHORIZATION OF PAYMENTS. No Bonus is payable under the Plan for a Fiscal Year unless the
Committee determines Bonuses may be payable for such Fiscal Year and provides Participants
with written notice of such determination. The Committee, thereafter, specifically authorizes
the Bonus payments to the Participants, provided the pre-established objectives are met for
such Fiscal Year.

	4.2	 	FINANCIAL GOAL AND PERFORMANCE FACTORS TRIGGERING BONUS. In its sole and absolute
discretion, the Committee determines Bonus payments under the Plan by establishing
quantitative factors specific to the Company, taking into account the Participant’s level in
the Company, and assessing the Participant’s attainment of qualitative individual performance
measures.

2

 

	 	(a)	 	Quantitative Company Measures. A Participant’s Potential Bonus
Percentage is determined based on the Company’s Net Income. If at the close of any
Fiscal Year, the Company achieves Net Income, the Plan will become active for such
year; otherwise, the Plan will be inactive for any Fiscal Year and no Bonus payments
will be made hereunder. Provided Net Income results for any Fiscal Year, Potential
Bonus Percentages or, if applicable, the discretionary bonus pool is determined
according to the following schedule:

	 	(i)	 	Net Income Less Than Trigger Target. If
the Company’s Net Income for any Fiscal Year is less than the Trigger
Target (a Net Income amount determined by the Committee from time to
time), the Committee in its sole discretion may establish a Bonus
Pool and allocate bonuses among members of the Management Team and/or
Staff Team as the Committee deems appropriate. No bonuses may be
paid to the Executive Team under this Plan if Net Income for any
Fiscal Year is less than the Trigger Target.
	 
	 	(ii)	 	Trigger Target. If the Company’s Net
Income for any Fiscal Year is equal to or greater than the Trigger
Target but less than the Stretch Target (as described below), the
Potential Bonus Percentages for the CEO, Participants within the
Executive Team (other than the CEO), the Management Team and the
Staff Team shall be amounts determined by the Committee by the last
day of the third month following the start of the Fiscal Year to
which the bonus relates.
	 
	 	(iii)	 	Stretch Target. If the Company’s Net
Income for any Fiscal Year is equal to or greater than the Stretch
Target (a Net Income amount in excess of the Trigger Target, which
shall be determined by the Committee from time to time), but less
than the Enhanced Stretch Target (as described below), the Potential
Bonus Percentages for the CEO, Participants within the Executive Team
(other than the CEO), the Management Team and the Staff Team is shall
be amounts determined by the Committee by the last day of the third
month following the start of the Fiscal Year to which the bonus
relates.
	 
	 	(iv)	 	Enhanced Stretch Target. If the Company’s
Net Income for any Fiscal Year is equal to or greater than the
Enhanced Stretch Target (a Net Income amount in excess of the Stretch
Target, which shall be determined by the Committee from time to
time), but less than the Super Stretch Target (as described below),
the Potential Bonus Percentages for the CEO, Participants within the
Executive Team (other than the CEO), the Management Team and the
Staff Team shall be amounts determined by the Committee by the last
day of the third month following the start

3

 

	 	 	 	of the Fiscal Year to which the bonus relates.

	 	(v)	 	Super Stretch Target. If the Company’s Net
Income for any Fiscal Year is equal to or greater than the Super
Stretch Target (a Net Income amount in excess of the Enhanced Stretch
Target, which shall be determined by the Committee from time to
time), the Potential Bonus Percentages for the CEO, Participants
within the Executive Team (other than the CEO), the Management Team
and the Staff Team shall be amounts determined by the Committee by
the last day of the third month following the start of the Fiscal
Year to which the bonus relates.
	 
	 	(vi)	 	Net Income in Excess of the Super Stretch
Target. If the Company’s Net Income for any Fiscal Year is greater
than Super Stretch Target, the Committee may establish a Bonus Pool
and allocate among and distribute the Bonus Pool to members of the
Bonus Groups as the Committee determines in its sole discretion.

	 	(b)	 	Participant’s Level. If the Committee determines that the Plan is
active for any Fiscal Year (as determined under Section 4.2(a) herein), the Bonus is
payable in an amount appropriate for the Participant’s level in the Company. Bonus
Groups, consisting of the Executive Team, Management Team and Staff Team, are used to
categorize the levels and bonus amounts of the Participants.
	 
	 	(c)	 	Qualitative Individual Measures. The Plan, if active for any Fiscal
Year (as determined under Section 4.2(a) herein), is designed to link a Participant’s
Bonus with the Company’s performance by establishing target objectives for each
Participant and assessing the Participant’s attainment of such objectives. The
objectives for each Bonus Group fall within the following categories (also referred to
as “Compass Points”):

	 	(i)	 	Executive Team — Financial, investors, customers, peers and leadership.
	 
	 	(ii)	 	Management Team — Financial, departmental and leadership.
	 
	 	(iii)	 	Staff Team — Financial, departmental and
individual.

	 	(d)	 	Creation of Goals. The Participants’ objectives and measurements
thereof shall be written and pre-established. To be pre-established, the objective
must be approved (consistent with the procedures set forth in parts (i) through (iii)
of this sub-section (d)) by the last day of the third month following the start of the
Fiscal Year to which the objective relates (or within 30 days after the date the
individual first becomes eligible to participate in the Plan, if later), and the
outcome must be uncertain at the time the objective is established. To ensure a
balanced approach to the various objectives applied to determine a Participant’s
Bonus, each objective will be assigned a weight value (expressed as a percentage)
based upon the overall objectives of the Company. The foregoing shall be

4

 

	 	 	 	communicated to each Participant as soon as practicable after the establishment of the
objectives, measurements and weight values.

	 	(i)	 	CEO and Executive Team. The CEO and
members of the Executive Team shall recommend objectives (as well as
measurements and weight values thereof) applicable to the CEO and
members of the Executive Team for approval by the Committee. Each
Executive Team member shall have goals that are specific to their
position. Members of the Executive Team shall share at least two
common objectives, which encourages and requires the team to work
closely together to achieve the objectives.
	 
	 	(ii)	 	Management Team. The CEO and members of
the Executive Team shall establish and approve financial,
departmental and leadership objectives (as well as measurements and
weight values thereof) for members of the Management Team.
	 
	 	(iii)	 	Staff Team. The CEO, Executive Team and
Management Team, acting jointly or severally, shall establish and
approve financial, departmental and leadership objectives (as well as
measurements and weight values thereof) for members of the Staff
Team.

	 	(e)	 	Review Process. As soon as practicable after the Fiscal Year audit
is completed and the Plan is determined to be active, each Participant’s performance
will be reviewed in relation to the pre-established Company objectives, as well as the
execution of the individually-assigned duties. The performance ratings, expressed as
a percentage (the Earned Bonus Percentage) are applied to determine the amount of the
Bonus Payment in accordance with Section 4.3 herein.

	 	(i)	 	CEO Review Process. An annual
review of the CEO will be completed by the Chairman of the Board and
the Chairman of the Committee.
	 
	 	(ii)	 	Executive Team Review Process. An
annual review of the Executive Team members, other than the CEO, will
be completed by the CEO and the Committee.
	 
	 	(iii)	 	Management Team Review Process.
An annual review of the Management Team members will be completed by
the CEO and members of the Executive Team.
	 
	 	(iv)	 	Staff Team Review Process. An
annual review of the Staff Team members will be completed by the
members of the Management Team.

5

 

	 	(f)	 	Initial Year of Plan. For Fiscal Year 2007, the Committee shall,
upon the effective date of the Plan, (i) establish the Trigger Target, Stretch Target,
Enhanced Stretch Target, and Super Stretch Target (collectively, the “Target
Thresholds”); (ii) establish the Potential Bonus Percentages for the CEO and the Bonus
Groups with respect to the various Target Thresholds; and (iii) create Participant
objectives and corresponding measurements and weight values thereof, notwithstanding
the provisions of Sections 4.2(a) and 4.2(d) herein with respect to the timing for
completion of the foregoing.

	4.3	 	CALCULATION OF BONUSES. If the Plan is active for any Fiscal Year (as determined under
Section 4.2(a) herein), each Participant shall become eligible to receive a Bonus, to be paid
in accordance with Section 4.5 herein, equal to: the product of (x) the Participant’s
Potential Bonus Percentage, and (y) the Participant’s Earned Bonus Percentage, and (z) the
Participant’s base annual salary, as in effect on the last day of the ninth month (April 30th)
of the Fiscal Year to which the Bonus relates; plus any allocation from the Bonus Pool as
determined under Sections 4.2(a)(i) and 4.2(a)(vi) herein; and reduced (but not below zero) by
any amounts paid from the Company’s commission incentive programs.

	 	(a)	 	Proration. If an employee enters the Plan after the first day of the
Fiscal Year to which the Bonus payment relates, the Bonus may be prorated, in the sole
discretion of the Committee, based on the length of time the individual served as an
employee of the Company during such Fiscal Year.

	4.4	 	VESTING. To receive a Bonus pursuant to Section 4.5 below, a Participant must complete at
least three months of service and be an active employee of the Company in good standing on the
date the bonus is paid. The Bonus has no cash out value until the payment date. If a
Participant’s termination of service occurs for any reason prior to the payment date, the
Participant shall forfeit all rights to the Bonus.

	4.5	 	TIME AND METHOD OF PAYMENT. Each Participant’s Bonus shall be paid in a lump sum payment
after the Fiscal Year audit to which the Bonus relates is completed and the individual
evaluation process has been finalized.

	4.6	 	APPLICABLE TAXES.

	 	(a)	 	Employment Taxes. The Company shall withhold from each Participant’s
Bonus, in a manner determined by the Company, the Participant’s share of FICA,
withholding taxes and other employment taxes.
	 
	 	(b)	 	Income Taxes and Deferred Compensation. Participants are solely
responsible and liable for the satisfaction of all taxes and penalties that may arise
in connection with this Plan (including any taxes arising under Section 409A of the
Internal Revenue Code). Neither the Company nor its affiliates nor any of their
directors, agents or employees shall have any obligation to indemnify or otherwise
hold any Participant harmless from any or all of such taxes.

6

 

ARTICLE V

RIGHTS OF PARTICIPANTS

	5.1	 	IN GENERAL. All payments are subject to the terms and conditions herein. Although
Participant’s performance may be rated periodically during any Fiscal Year and progress may be
tracked, all Bonus payments are subject to the calculation as set forth in Section 4.3 herein.
The mere existence of periodic performance assessments or Company performance tracking does
not give the Participant any basis for claiming any Bonus under this Plan on a pro rata basis
during the fiscal year or otherwise.

	5.2	 	NOT A CONTRACT OF EMPLOYMENT. Nothing in this Plan gives a Participant the right to remain
in the employ of the Company. Except to the extent explicitly provided otherwise in a then
effective written employment contract executed by the Participant and the Company, Participant
is an at will employee whose employment may be terminated without liability at any time for
any reason.

	5.3	 	CLAWBACK RELATING TO CERTAIN FINANCIAL RESTATEMENT. To the extent permitted by governing
law, the Board shall have the discretion to require that each member of the Executive Team
reimburse the Company for all or any portion of the Bonus if:

	 	(a)	 	Bonus Payment Is Dependent on Financial Results. The payment, grant
or vesting was predicated upon the achievement of certain financial results that were
subsequently the subject of a material financial restatement;
	 
	 	(b)	 	Fraud or Misconduct. In the Board’s view, the member of the
Executive Team engaged in fraud or misconduct that caused or partially caused the need
for a material financial restatement by the Company or any substantial affiliate; and
	 
	 	(c)	 	Lower Payment Results. A lower payment, award or vesting would have
occurred based upon the restated financial results.
	 
	 	 	 	In each such instance, the Company will, to the extent practicable and allowable under
applicable laws, require reimbursement of any Bonus awarded to a member of the
Executive Team in the amount by which the individual’s annual bonus exceeded the lower
payment that would have been made based on the restated financial results, plus a
reasonable rate of interest; provided that the Company will not seek to recover bonuses
paid more than three years prior to the date the applicable restatement is disclosed.

In addition, the Board could terminate the member of the Executive Team for cause,
authorize legal action for breach of fiduciary duty, assert rights under Section 304 of the
Sarbanes-Oxley Act, or take such other action to enforce the executive’s obligations to the
Company as may fit the facts surrounding the particular case.

7

 

ARTICLE VI

ADMINISTRATION

The Plan shall be administered by the Committee. The Committee shall have the right to construe
the Plan, to interpret any provision of the Plan, to make rules and regulations relating to the
Plan, and to determine any factual question arising in connection with the Plan’s operation after
such investigation or hearing as the Committee may deem appropriate. Any decision made by the
Committee under the provisions of this Article shall be conclusive and binding on all parties
concerned. The Committee may delegate to the officers or employees of the Company the authority to
execute and deliver those instruments and documents, to do all acts and things, and to take all
other steps deemed necessary, advisable or convenient for the administration of this Plan in
accordance with its terms and purpose.

ARTICLE VII

AMENDMENT OR TERMINATION OF PLAN

The Board or the Committee shall have the unilateral right to amend, suspend or terminate this Plan
at any time with respect to all or some Participants and with respect to any unearned or unvested
Bonus that is or could become payable. If such amendment or termination of the Plan would have a
material and adverse affect on a Participant’s earned, but unvested Bonus, then written consent of
the Participant is required with respect to such Bonus.

ARTICLE VIII

EFFECTIVE DATE

This Plan shall be effective January 25, 2007.

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