In this paper, a new method of estimating critical generation margin (CGM) in power systems is proposed from the viewpoint of transient stability diagnostic. The proposed method has the capability to directly compute the stability limit output for a given contingency based on transient energy function method (TEF). Since CGM can be directly obtained by the limit output using estimated P-θ curves and is easy to understand, it is more useful rather than conventional critical clearing time (CCT) of energy function method. The proposed method can also estimate CGM as its negative value that means unstable in present load profile, then negative CGM can be directly utilized as generator output restriction.The proposed method is verified its accuracy and fast solution ability by applying to simple 3-machine model and IEEJ EAST10-machine standard model. Furthermore the useful application to severity ranking of transient stability for a lot of contingency cases is discussed by using CGM.