EC threatens Madrid with legal action over breach of competition legislation

The action was a final warning to Madrid that it must comply with a European Union order which was issued in December or face a lawsuit at the EU court of justice.

The Luxembourg-based court could impose hefty fines on the Spanish government if it is found to have violated EU competition rules.

"If there is no satisfactory reply within one month, the commission may decide to refer Spain to court," warned the EU executive.

An EU investigation last year found that Spain's energy commission CNE had violated the rights of Italian utility Enel SpA and Spanish company Acciona to invest, set up a business and move goods anywhere in the 27-nation European Union.

The investigation called the CNE protectionist for attempting to safeguard its national interest in the utility giant.

The commission insisted that it alone had the power to decide if cross-border mergers should be approved or not and the conditions for such approval.

Spain is unlikely to win a case at the EU court, which ruled in March that Spanish regulators had had no right to shield Endesa from an earlier takeover bid launched by Germany's E.ON AG in 2006.

The Spanish government had favoured a Spanish suitor for Endesa, even though management opted for the E.ON offer.

The government then granted powers to the CNE, which placed a string of tough conditions on the bid and frightened off the German company.