SETTLEMENT AGREEMENT AND GENERAL RELEASE

Exhibit 99.1

SETTLEMENT AGREEMENT AND GENERAL RELEASE

     This Settlement Agreement and General Release (this “Agreement”) is hereby entered into by and among Lawrence Clayton, Jr., an individual (the “Executive”), and Commerce Energy, Inc., a California corporation (the “Company”), and Commerce Energy Group, Inc., a Delaware corporation (“Commerce”).

Recitals

     A. The Executive was employed as Senior Vice President, Chief Financial Officer and Secretary of Commerce and the Company pursuant to an Employment Agreement by and between Commerce on behalf of itself and any and all of its subsidiaries and the Executive dated December 1, 2005, as amended by Amendment No. 1 to such Employment Agreement dated November 30, 2006 and Amendment No. 2 to such Employment Agreement dated January 25, 2007 (collectively, the “Employment Agreement”); and

     B. The Executive’s status as an officer, director, employee, and in all other capacities with Commerce and any of its parents, direct and indirect subsidiaries, affiliates, divisions and related entities (hereinafter collectively referred to as, “Commerce and its Related Entities”) irrevocably ended on July 25, 2007 (the “Termination Date”).

     C. The Executive subsequent to his termination retained the services of Richard A. Love to represent him in connection with his termination, and has asserted claims against the Company pursuant to the Employment Agreement.

Agreement

     In consideration of the mutual promises contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:

     1. Effective Date . Except as otherwise provided herein, this Agreement shall be effective on the eighth day after it has been executed by the Executive, provided that the Executive shall not have exercised his right to revoke Sections 6, 8 and 9 of this Agreement as provided in Section 10(c) of this Agreement (the “Effective Date”), and provided further that all other parties have executed the Agreement on or before the Effective Date.

     2. Non Admission of Liability . This Agreement shall not in any way be construed as an admission by Commerce of any liability whatsoever, or as an admission by Commerce of any wrongful acts whatsoever committed by it or any of the other Commerce Releasees, as defined below, against the Executive, or against any other persons, and Commerce specifically disclaims any liability to the Executive, or to any other persons or entities..

     3. Settlement Payment . Commerce agrees to pay the Executive an amount equal to $400,000 (the “Settlement Payment”). The Settlement Payment shall be paid jointly to the Executive and his counsel, Richard A. Love, one business day after January 1, 2008, and

shall be made, at the option of the Executive, by check mailed to Richard A. Love or wire transfer to the Richard A. Love Client Trust Account. Commerce may delegate the payment obligation under this Section 3 to its wholly-owned subsidiary, the Company. The Company will issue an IRS Form 1099 with respect to the Settlement Payment.

     4. Tax Indemnification . The Executive agrees that he is solely responsible for all tax obligations, including, but not limited to, all payment obligations, which may arise as a consequence of this settlement. The Executive further agrees promptly to pay and to indemnify and hold Commerce and the other Commerce Releasees harmless from and against any and all loss, cost, damage or expense, including, without limitation, attorneys’ fees, interest, assessments, withholding and penalties, arising out of any dispute over the non-withholding or other tax treatment of any of the proceeds paid to Executive or on Executive’s behalf as a result of this settlement. The Executive further agrees not to seek or make any claim against Commerce or the other Commerce Releasees for any loss, cost, damage or expense if a claim or adverse determination is made in connection with the non-withholding or other tax treatment of any of the proceeds of this settlement or any portion thereof. The Executive understands and agrees that neither Commerce nor the other Commerce Releasees have any duty to defend against any claim or assertion in connection with the non-withholding or other tax treatment of the proceeds of this settlement or any portion thereof, and the Executive agrees to assume full responsibility for defending against any such claim or assertion.

     5. Acknowledgement of Total Compensation and Indebtedness . The Executive acknowledges and agrees that the payment of monies and provision of the equipment and hardware described in Section 3 of this Agreement extinguish any and all obligations for monies or other compensation or benefits that the Executive claims or could claim to have earned or claims or could claim is owed to him as a result of his employment by Commerce and its Related Entities through the Termination Date, or otherwise, except as expressly set forth herein.

     6. Complete Release by Executive . Except with respect to Commerce stock that the Executive personally owns as of the Effective Date of this Agreement, and as otherwise expressly provided in this Agreement, the Executive, for himself and his heirs, executors, administrators, assigns, affiliates, successors and agents (collectively, the “Executive’s Affiliates”) hereby fully and without limitation releases and forever discharges Commerce and its Related Entities, and each of their respective agents, representatives, shareholders, owners, officers, directors, employees, consultants, attorneys, auditors, accountants, investigators, affiliates, successors and assigns (collectively, the “Commerce Releasees”), both individually and collectively, from any and all rights, claims, demands, liabilities, actions, causes of action, damages, losses, costs, expenses and compensation, of whatever nature whatsoever, known or unknown, fixed or contingent, which the Executive or any of the Executive’s Affiliates has or may have or may claim to have against the Commerce Releasees by reason of any matter, cause, or thing whatsoever, from the beginning of time to the Effective Date (“Claims”), including, without limiting the generality of the foregoing, any Claims arising out of, based upon, or relating to the recruitment, hiring, employment, relocation, remuneration, investigation or termination of the Executive by any of the Commerce Releasees, the Executive’s tenure as an employee and/or an officer of any of the Commerce Releasees, any agreement or compensation arrangement between the Executive and

any of the Commerce Releasees. The Executive specifically and expressly releases any Claims arising out of or based on: Title VII of the Civil Rights Act of 1964, as amended; the Americans With Disabilities Act; the National Labor Relations Act, as amended; the Equal Pay Act; ERISA; any alleged violation of any statute of Michigan and California, the common law of Michigan, Texas and California on fraud, misrepresentation, negligence, defamation, infliction of emotional distress or other tort, breach of contract or covenant, violation of public policy or wrongful termination; state or federal wage and hour laws; or any other state or federal law, rule or regulation dealing with the employment relationship or operating a publicly held business. Nothing contained in this Section 9 or any other provision of this Agreement shall release or waive any rights of Executive that may not be waived according to California or federal law.

     7. Complete Release by Commerce . Commerce, its predecessor and successor companies, parents and affiliated companies, including the Company does hereby, release, acquit and forever discharge the Executive, and his heirs, representatives, executors and administrators (“Executive Releasees”) from any and all Claims from the beginning of time to the date of execution hereof.

     8. Waiver of Unknown Claims . The Executive and Commerce each understands and agrees that the release provided herein extends to all Claims released above whether known or unknown, suspected or unsuspected. The Executive and Commerce each expressly waives and relinquishes any and all rights he/it may have under any laws intended to prevent the release of unknown claims, such as California Civil Code Section 1542, which provides as follows:

“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM OR HER MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR.”

     It is the intention of the Executive and Commerce through this Agreement to fully, finally and forever settle and release the Claims as set forth above. In furtherance of such intention, the release herein given shall be and remain in effect as a full and complete release of such matters notwithstanding the discovery of any additional Claims or facts relating thereto.

     9. Release of Federal Age Discrimination Claims by the Executive . The Executive hereby knowingly and voluntarily waives and releases all rights and claims, known or unknown, arising under the Age Discrimination In Employment Act of 1967, as amended (“ADEA”), which he might otherwise have had against Commerce or the Company or any of the Commerce Releasees regarding any actions which occurred prior to the Effective Date.

     10. Rights Under the Older Workers Benefit Protection Act . In accordance with the Older Workers Benefit Protection Act of 1990, the Executive hereby is advised of the following:

          (a) The Executive has the right to consult with an attorney before signing this Agreement and has done so;

          (b) The Executive has twenty-one (21) days from his receipt of this Agreement to consider it, and herby wavies that right; and

          (c) The Executive has seven (7) days after signing this Agreement to revoke Sections 9, 11 and 12 of this Agreement (which must be revoked in their entirety and as a group), and such Sections of this Agreement (as a group) will not be effective until that revocation period has expired without exercise. The Executive agrees that in order to exercise his right to revoke this Agreement within such seven (7) day period, he must do so in a signed writing delivered to Commerce’s Chief Executive Officer before the close of business on the seventh calendar day after he signs this Agreement.

     11. Non-Disclosure of the Agreement by the Executive . After the execution of this Agreement by the Executive, neither the Executive, his attorney, nor any person acting by, through, under or in concert with them, shall disclose any of the terms of or amount paid under this Agreement (other than to state that Commerce has filed this Agreement and/or agreements related thereto as public documents) or the negotiation thereof to any individual or entity; provided, however, that the foregoing shall not prevent such disclosures by the Executive to his attorneys, tax advisors and/or immediate family members, or as may be required by law.

     12. Non-Disclosure of the Agreement by Commerce . The non-disclosure obligations in this Section shall not apply to Commerce. The Executive understands and acknowledges that Commerce must file this Agreement and make disclosures relating to it in its filings with the U.S. Securities and Exchange Commission; provided, however, that Commerce agrees that no disclose will be made by it as to the reasons for the Executive’s termination other than those that have already been disclosed in filings made by Commerce with the U.S. Securities and Exchange Commission.

     13. No Filings . The Executive represents that he has not filed any lawsuits, claims, charges or complaints against Commerce, the Company or the Commerce Releasees with any local, state or fede