The albatross weighing down merchant energy stocks lightened some on Friday. The sector, hammered for months over potential liabilities in California, bounced on favorable news from the Federal Energy Regulatory Commission. FERC judge Bruce Birchman decided that 10 energy companies accused of overcharging California for power by $9.1 billion during the 2000-2001 energy crisis should pay the state only $1.8 billion in refunds. Because California still owes the companies $3 billion for power it never paid for, the energy traders could come out of the deal $1.2 billion ahead. The recommendation, described as preliminary, still needs approval from the full FERC. California Gov. Gray Davis has already expressed outrage at the "pittance" energy companies would refund his state under the proposal, and has vowed to appeal the decision if it's finalized. But if approved, the settlement would be a godsend for battered energy merchants hoping to put their worst nightmares -- centered in California -- behind them. Investors in the sector, clearly braced for much worse, rushed to celebrate the news. The biggest boost went to a company that, perhaps, needed it most. Shares of Dynegy ( DYN) soared 18% to $1.06 on hopes for the FERC recommendation, which would net Dynegy $125 million even after paying a $177 million refund. The stock, which sank below the $1 mark on Thursday, is in danger of being delisted by the New York Stock Exchange if it cannot retain a minimum $1 share price. Debt-laden Reliant Resources ( RRI) tacked on the second-largest percentage gain. The company, which would net $154 million under the proposed FERC deal, climbed 15% to $2.59 in midday trading. Williams ( WMB) enjoyed a similar rally, jumping 11% to $2.59. The FERC judge has recommended that Williams repay California $192 million -- more than any other company -- but the ruling would still leave Williams $55 million in the black.