The dispute has been rumbling on since 2015, but after years of trying to persuade Germany to implement the law, the Commission has now resorted to legal action.
The complaint will now be heard by a panel of judges at the European Court of Justice.
If found guilty, the German government could be slapped with fines for noncompliance.
A statement issued by the Commission said: “Since EU law is still not being respected, the Commission has to refer the matter to the court.”
The authority accuses the federal government of having failed to correctly implement the Electricity Directive and the Gas Directive which were drawn up in 2009.
The rules are designed to increase competition among energy providers with the aim of promoting more competition and ultimately lower prices for consumers.
But Germany’s Federal Network Agency, the body responsible for regulating the country’s power markets, is accused of a lack of independence in its setting of power grid fees.
The Commission also says Germany’s rules do not go far enough to distinguish the difference between firms that produce power and companies which run transmission networks.
The authority told Angela Merkel’s government to properly implement its rules in 2015, and made a further demand in April 2016, German business newspaper Handelsblatt reports.
Today’s legal action is not the first time the Commission has accused Germany of flouting EU laws.
Last month, the German government was found guilty over failing clean up the country’s groundwater.
Berlin was accused in 2016 of ignoring the bloc’s environmental standards after high levels of nitrate were detected in the water table.
Despite being obligated to address the issue by 2012, both federal and state governments in Germany had failed to act.