EU Takes Spain to Court
"Since the Spanish government has still not withdrawn the illegal measures ... the Commission has decided to refer the case (to court)," the Commission said in a statement.
E.ON made a take-over bid for Spain's biggest energy company Endesa last year. Although EU regulators approved the merger unconditionally, it met with strong resistance from Spanish politicians. The Spanish energy regulator CNE then set a number of requirements for the sale.
The Commission ruled in September 2006 that these conditions violated EU rules by breaching measures on the free movement of capital.
In response, Spain lifted part of the conditions and limited their duration, but argued that the requirements were necessary to secure the national energy supply and did not create a problem because E.ON had accepted them.
The Spanish government bound E.ON to hold onto Endesa's brand name for five years, to refrain from selling off Endesa's electricity assets outside mainland Spain and to keep using Spanish fuel in Endesa's coal-powered plants.
EU wants energy sector to open up
The Commission's decision to refer the cast to court is the latest twist in a test case for European cross-border deals in the energy sector, underlining the EU executive's determination to crack down on what it sees as Spain's protectionist behavior.
The move comes just two days after E.ON scored a key victory in its long-running battle for control of Endesa. On Monday, Endesa's board backed E.ON's bid of 42.4 billion euros ($56.5 billion) for the takeover.
Counter bid for Endesa
However, Spanish construction firm Acciona and Italian electricity company Enel, both Endesa shareholders, said they would launch a joint counter-bid for the Spanish power company and would improve on E.ON's offer by at least one euro.
While E.ON's latest bid values Endesa at 42.4 billion euros, the Enel-Acciona offer would bring Endesa's value to 43.4 billion euros.
E.ON announced on Tuesday had secured Caja Madrid's 9.9 percent stake in Endesa by means of a swap agreement with the Spanish bank. The German company, however, needs at least 50 percent for its bid to succeed.
Enel and Acciona together already hold about a 46 per cent stake in Endesa.