(Reuters) - PG&E Corp shareholder BlueMountain Capital Management LLC said on Thursday it is preparing a challenge to the embattled utility owner’s board, arguing its plan to file for bankruptcy in the wake of catastrophic wildfires in California is harming investors.

FILE PHOTO: PG&E works on power lines to repair damage caused by the Camp Fire in Paradise, California, U.S. November 21, 2018. REUTERS/Elijah Nouvelage/File Photo

The hedge fund, which owns about 2 percent of PG&E, said it is trying to rally support from other shareholders to replace all 10 of the company’s board members at this year’s annual meeting expected in May.

BlueMountain’s chances of success are remote, given that PG&E has said its bankruptcy filing may come as early Jan. 29. However, the maneuvering could end up giving BlueMountain a bigger role in any bankruptcy negotiations.

“As we noted in our letter today, shareholders retain their corporate governance rights in bankruptcy,” a BlueMountain spokesman said.

The hedge fund and other shareholders could potentially be in line to sit on a so-called equity committee that a bankruptcy judge would be empowered to appoint as part of PG&E’s court proceedings.

Such a committee would have the ability to litigate during PG&E’s bankruptcy case and gain leverage to improve financial recoveries as the company develops a reorganization plan.

"We expect to announce the new slate no later than February, 21, 2019," BlueMountain said in an open letter here to PG&E shareholders on Thursday.

“In order to rebuild essential relationships and restore trust, the company needs an entirely new board,” the letter said. This is the second time the hedge fund has run a proxy contest and it did not identify its intended nominees in the letter.

PG&E is reeling from potentially crushing liabilities associated with deadly wildfires in 2017 and 2018 that ripped through California communities, killing dozens of people and destroying homes.

The company forecasts its liabilities from the blazes could exceed $30 billion. The utility owner is facing scrutiny over the role of its equipment in the fires.

With a new board and fresh oversight, the hedge fund forecast that the company’s share price could trade at $50 in the future. PG&E shares were down 1 percent at $7.91 in morning trading in New York on Thursday, giving the company a market capitalization of $4.2 billion.

“When sound governance is restored, and structural issues addressed, the company will resolve its financial issues,” the hedge fund wrote.

BlueMountain’s move, while a potential distraction for PG&E during its expected debt restructuring, would need additional support from other shareholders, like hedge funds Baupost Group, D.E. Shaw and Hound Partners, among others, to succeed.

PG&E, the biggest U.S. power utility by customers, provides electricity and natural gas to 16 million customers in northern and central California.

‘UNNECESSARY BANKRUPTCY’

BlueMountain has publicly challenged PG&E Corp’s plan to file for bankruptcy protection as early as next week, which the company revealed to employees earlier this month in part due to a California law requiring such notification.

The board’s “intention to file a voluntary, costly, and unnecessary bankruptcy ... in our view, violates their fiduciary duties to the company and to you,” the hedge fund said in its letter.

Board members failed to roll up their sleeves and are ready “to concede defeat and pass the buck to a bankruptcy judge,” the hedge fund wrote.

PG&E said in a securities filing it could potentially raise more money and avoid seeking bankruptcy protection, but argued such a move would be complex, uncertain and expensive.

PG&E’s chief executive recently resigned and Chairman Richard Kelly said the company is committed to “further change” and searching for a new leader with “extensive operational and safety expertise” while its general counsel helms operations on an interim basis.

Most companies filing for bankruptcy protection have nearly worthless stocks that result in shareholders being wiped out while creditors seek to recover as much as possible from a financially-strapped firm.