The European Commission said Wednesday it was taking Spain to the EU's Court of Justice over the "unlawful" conditions Madrid put on E.On's multibillion euro bid to buy Spain's biggest electricity company, Endesa.
"Since the Spanish government has still not withdrawn the illegal measures ... the Commission has decided to refer the case" to the EU court, the Commission said.
It added that it referred Spain to the court "for not lifting unlawful conditions imposed on E.On's bid for Endesa."
EU spokesman Jonathan Todd told reporters that Spain's reply it sent to EU regulators two weeks ago did not meet EU demands it lift conditions it imposed on E.On's now-42.4 billion euro($56.3 billion) bid to buy Endesa.
"Spain has failed to inform the Commission of any measures taken to lift the restrictions in question," Todd said.
He said restrictions set by Spain's own energy regulator and by the government "were declared illegal by the Commission in September and in December because they violated the Commission's exclusive jurisdiction over the proposed E.On-Endesa takeover bid under the EU's merger regulations."
The Commission had formally requested Spain withdraw key conditions on the German company's bid by March 16 or face a possible legal battle at the EU's high court in Luxembourg.
Under pressure from EU regulators, Spain had dropped some conditions, but it still insists that E.On keep Endesa's brand name for five years, does not sell Endesa's electricity assets outside mainland Spain and keeps Endesa's coal-powered plants using Spanish fuel.
E.On also has to promise not to adopt "strategic decisions" on Endesa and Spain's security of supply that would be "contrary to the Spanish legal order."
EU regulators have said those conditions broke EU rules on the free movement of capital and the freedom to set up business anywhere in the 27-nation bloc.
Todd said it was "not for individual states to decide whether to decide whether they are compliant" with EU competition rules. "Today's decision is further demonstration, to enforce a European Union based on law."