CALGARY, Alberta (Reuters) - Another large TransAlta Corp investor has mounted efforts to boost the Canadian power producer's value, urging the company to auction itself off days after private U.S. firms proposed a C$7.8 billion ($7.7 billion) takeover.

Seneca Capital, a New York-based investment fund with about 3 percent of TransAlta's shares, said the company should weigh a sale process along with taking on a strategic partner or restructuring its long-term electricity contracts.

The investor made the recommendations in a letter to TransAlta's special board committee, formed this weekend after LS Power Equity Partners and Global Infrastructure Partners said they aim to buy TransAlta for C$39 a share.

LS Power and Global Infrastructure, which own 9 percent of TransAlta shares, made their proposal public on Monday, saying the firm's value is not reflected in the stock price and it should be taken private.

"As part of its strategic review, the special committee should engage a globally recognized independent financial advisor with the mandate to explore a range of strategic alternatives and then act expeditiously to execute the optimal strategic path," Seneca said in the letter.

It also said TransAlta should restructure its management pay packages to add stock option grants as a way to align executives' interests with investors'.

"We believe that the July 21st proposal and the continued disconnect between the company's share price and intrinsic value, clearly demonstrate that the status quo is not a viable option," Seneca said.

The investment fund declined further comment.

TransAlta operates coal- and gas-fired power plants as well as renewable energy facilities in Canada and the United States.

The board is studying the takeover proposal, which is not yet a formal bid, as well as the Seneca letter, TransAlta spokesman Michael Lawrence said. It will respond in coming days, he added.

It has yet to receive similar letters from other investors, Lawrence said.

"(The board's) focus is on driving the best results for all shareholders," he said.

Some analysts have said it is possible that TransAlta could attract another bidder, perhaps a Canadian pension fund or rival power generator.

Earlier this year, Luminus Management LLC, which is affiliated with LS Power, launched a campaign to get TransAlta to load up on billions of dollars of debt and sell assets to fund major stock buybacks as a way to boost the share price. It proposed stacking the board with its own nominees.

But Luminus dropped its proxy fight in March, saying it was pleased with moves by the company, such as selling its Mexican operations and boosting its stock dividend.

LS Power's president was careful on Monday to say that he is still pleased with TransAlta Chief Executive Steve Snyder's strategy and performance, and would like to keep the staff in place.

TransAlta shares slipped 14 Canadian cents to C$36.97 on the Toronto Stock Exchange on Tuesday.

($1=$1.01 Canadian)

(Additional reporting by Scott Haggett; editing by Rob Wilson)

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