The crunch has been blamed on cold weather in the Northwest, the shutdown of some power plants for repairs, and the effects of electrical deregulation in California.
Companies and individual consumers who had previously agreed to reduce or shut down their power in emergencies were ordered to do so when officials declared a Stage Two emergency. It was the fourth such declaration in as many days and the eighth in three weeks.
The crisis elevated to a Stage Three later in the day, which state officials said could lead to "rolling blackouts."
"We are really hurting today. The state is scrambling to find energy," said Pat Dorinson, spokesman for the California Independent System Operator.
A Stage Two emergency is declared when power reserves fall - or are expected to fall - below 5%. California never has had a statewide Stage Three emergency, which indicates reserves have fallen below 1.5%.
A Stage Three alert "would probably come in the early afternoon," said ISO spokeswoman Lorie O'Donley.
In response to the crunch, inspectors launched surprise inspections of power plants that have closed for repairs to see whether the shutdowns were deliberate attempts to drive up costs by limiting supply.
Power plant owners said the shutdowns were legitimate.
"We have worked very diligently to go the extra mile to keep our units up and running," said Richard Wheatley, a spokesman for Reliant Energy of Houston, which has five California plants.
Shutdowns were part of the reason that a quarter of the system's capacity was down one day by 11,000 megawatts, enough to supply 11 million homes.
Of that amount, state officials said, 4,000 megawatts were from plant breakdowns. Another 4,500 were from scheduled maintenance and 2,500 were from plants closed because they had reached the state's annual limit for pollution.
If inspectors found that plants were shutting to boost prices, it's unclear what the state could do about it. Gov. Gray Davis' press secretary, Steven Maviglio, called the state's legal authority "a gray area."
The phased-in deregulation of California's $20 billion electrical power industry was supposed to lower prices by creating greater competition. But demand for electricity has outstripped supply because of a growing population, a booming high-tech economy, and less power available from neighboring states that haven't deregulated.