A map posted on InciWeb, the Incident Information System monitoring website, shows the blaze nearing the Hetch Hetchy Reservoir, the main source of fresh water for 2.6 million people living in the San Francisco Bay Area, which lies some 320 kilometres to the west.
Local news media reported early today that flames from the Rim Fire were a mere five miles away from the reservoir.
The blaze has charred through 133,980 acres (54,220 hectares) and is just seven percent contained, according to InciWeb, which monitors fires in the western United States.
The utility said it also had large reserves of water stored locally, which it will make available if the fire interrupts delivery.
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However, the city also relies on hydroelectric power from the same region: two of its three power plants were shut down when the fire swept through, Jue told the Chronicle.
The city kept the power flowing by relying on agreements with other utility companies and buying supplemental power.
More than 2,800 firefighters, supported by helicopters and air tankers, are struggling to contain the blaze, which started on August 17 from still unknown causes.
Extremely dry conditions due to a prolonged drought, coupled with inaccessible terrain in the affected area, have exacerbated the severity of the incident.
Governor Jerry Brown earlier declared a state of emergency for San Francisco due to the threat to its water and electricity.
The state's firefighting efforts got a boost when California received federal assistance over the weekend to help mobilize the necessary resources.
According to satellite photos, giant columns of white smoke were drifting north into the neighboring state of Nevada.
The Rim Fire "is expected to continue to exhibit very large fire growth due to extremely dry fuels and inaccessible terrain," Inciweb said.