Shares of besieged California utility PG&E Corp. rallied Tuesday despite a bitter disagreement between the company and some of its shareholders over its decision to file for Chapter 11 bankruptcy protection.

The nation's largest U.S. power provider filed for bankruptcy on Tuesday and asked the court to approve a $5.5 billion debtor-in-possession financing, it said in a statement. The company also filed various motions with the Court, including requests for permission to continue paying employees and providing them healthcare and other benefits.

On its website, PG&E said it would continue to provide electric and natural gas service as normal. The San Francisco utility has 16 million customers in Northern and Central California. "To be clear, we have heard the calls for change and we are determined to take action throughout this process to build the energy system our customers want and deserve," said John R. Simon, PG&E's interim CEO, in a statement.

Shares of PG&E rose 17 percent Tuesday. Some traders speculated that those with bets against the shares were closing out their trades and forcing up the stock price. The stock is down more than 65 percent over the past six months.

PG&E's bankruptcy filing comes nearly three months after the start of the so-called Camp Fire, which broke out on the morning of Nov. 8 near the town of Paradise in northern California. The fast-moving wildfire killed at least 86 people and destroyed about 14,000 homes, making it the state's deadliest.

Though responsibility for that fire has yet to be determined, state investigators cleared the utility company of liability in the October 2017 Tubbs Fire on Thursday, the largest such fire of that year. While a small victory for the company, that finding comes after state investigators determined that PG&E's equipment was liable in at least 17 major wildfires in 2017.

PG&E listed assets of $71.39 billion and liabilities of $51.69 billion, in a court document filed in the U.S. Bankruptcy Court for the Northern District of California.

But while the company's expected costs tally up to as much as $30 billion, beyond what the company says it's able to manage, some on Wall Street remain unconvinced.

Hedge fund and PG&E shareholder BlueMountain Capital has challenged the utility's plan. "We write to challenge the Board's plan for a damaging, avoidable, and unnecessary bankruptcy. There is overwhelming evidence that PG&E is solvent," the fund wrote on Jan. 17. "We simply cannot recall a situation where such a valuable company filed for bankruptcy with such blatant questions about the necessity of doing so."

Even one top Wall Street's top analyst remained certain that a court would approve PG&E's bid for bankruptcy protection.

"We believe there is a meaningful probability that a court would reject a PG&E Chapter 11 filing on the ground that the company is solvent and that PG&E is filing Chapter 11 to achieve tactical litigation advantages," Morgan Stanley analyst Stephen Byrd wrote Tuesday. "Bankruptcy law includes a "good faith" Chapter 11 filing requirement, in which the debtor must not be filing for reasons inconsistent with the reasons Chapter 11 was created."

The fund may also be concerned about its performance, since its portfolios hold more than 10 million PG&E shares. Banks and bondholders usually have priority in their claims to recover money in a bankruptcy before shareholders and other parties.

Others, including University of Chicago bankruptcy professor Douglas Baird, said they have "no doubt" PG&E would qualify for Chapter 11 protections.

"Companies need to file in good faith and they need to show they're in financial distress. All they need to do is say we have a problem," Baird, who served as the law school's dean from 1994 to 1999, told CNBC. "The $30 billion back-of-the-envelope estimate might be on the low side, and also you don't know what the revenues are like going forward because they may need to make additional capital investments."

To be sure, Baird added, a company doesn't avoid all liability by filing for bankruptcy.

"PG&E has to pay all its creditors every penny they're owed," he said. "The big thing that people forget is that companies in bankruptcy still have to play by the same rules as everyone else."

Other equity holders, including Seth Klarman's $30 billion hedge fund The Baupost Group, have devised other ways to hedge their bets on PG&E. A source familiar with the matter confirmed to CNBC earlier this month that Klarman has spoken to multiple insurance companies about buying their claims against PG&E.

Such claims would be entitled for repayment under a bankruptcy proceeding and could work as a hedge that could offset losses in PG&E's stock. The claims could also grant the hedge fund a say in how the company ultimately reorganizes itself.