Conflict of Interest Regulation in System Operations

1. Introduction

A conflict of interest in electricity system operations arises when an institution or person responsible for operating the electricity network has another interest that could influence, or appear to influence, operational decisions. This is particularly important where the system operator is connected to generation, transmission, electricity trading or other commercial activities.

The system operator makes important decisions about dispatch, network access, congestion management, load reduction and system security. These decisions should be based on technical rules, reliability and the public interest, rather than private or commercial advantage.

In South Africa, conflict-of-interest regulation is connected with the Electricity Regulation Act 4 of 2006 (ERA), NERSA licence conditions, the South African Grid Code, constitutional principles of accountability and administrative justice, and public procurement law.

2. Why Conflicts of Interest Matter

The system operator occupies a position of considerable importance. It may possess information about:

generation availability;

network constraints;

system demand;

planned outages;

transmission capacity;

emergency conditions; and

other market-sensitive information.

If the operator or its officials have competing commercial interests, there may be a risk that decisions could favour a particular generator, trader, customer or affiliated business.

The central regulatory principle is therefore independence of decision-making.

3. Separation of System Operation and Commercial Interests

A major safeguard is to separate technical system-operation decisions from commercial interests as far as the regulatory structure requires.

In Eskom Holdings SOC Ltd v Sonae Arauco (Pty) Ltd (2024), the Supreme Court of Appeal explained that Eskom, as the system operator, is required under the applicable Grid Code to take prompt remedial action where an abnormal condition threatens reliable grid operation. The Court recognised that the system operator has important responsibilities concerning load reduction and grid stability.

This demonstrates why system-operation powers must be exercised according to objective technical rules, rather than individual commercial preferences.

4. Conflict-of-Interest Policies

Conflict-of-interest controls can require officials to:

disclose financial or personal interests;

avoid participating in decisions where they have a conflicting interest;

obtain approval for certain outside activities;

maintain appropriate records; and

comply with procurement and ethical rules.

The Special Investigation Unit v Mazibuko (2021) case is particularly useful. The case concerned an Eskom employee who failed to disclose an interest in a business connected with an Eskom supplier. The tribunal recorded that Eskom's Conflict of Interest Policy prohibited employees from benefiting from Eskom contracts and required disclosure of relevant interests. The case illustrates how undisclosed interests can undermine the integrity of electricity procurement and decision-making.

Although the case concerned procurement rather than real-time system operation, its principles are relevant to the broader regulation of conflicts within electricity institutions.

5. Procurement and Institutional Integrity

Conflict-of-interest rules are also important when the system operator purchases equipment, maintenance services or other infrastructure.

In Eskom Holdings SOC Ltd v Babcock Ntuthuko Engineering (2024), the Supreme Court of Appeal considered an Eskom procurement dispute. The record showed that Eskom obtained probity reports specifically examining potential conflicts of interest involving recommended suppliers.

This illustrates the importance of independent probity checks and transparent procurement procedures where commercial interests could affect public decisions.

6. Constitutional Accountability

Eskom is a public entity and exercises statutory powers. Its decision-making must therefore comply with constitutional principles, including accountability, legality and rationality.

In Eskom Holdings SOC Ltd v Vaal River Development Association (2022), the Constitutional Court emphasised the broader regulatory framework governing Eskom and recognised that its electricity-supply responsibilities cannot be separated from its financial and regulatory obligations.

This is important for conflict regulation because operational decisions must remain connected to the statutory purpose of maintaining a functioning electricity system, rather than serving unrelated interests.

7. Transparency and Review

Conflict-of-interest regulation also requires appropriate transparency. Disclosure requirements allow regulators and affected parties to identify potential conflicts before they influence decisions.

Where an operational decision constitutes administrative action, section 33 of the Constitution and the Promotion of Administrative Justice Act 3 of 2000 may provide mechanisms for review.

However, transparency must be balanced against legitimate protection of commercially sensitive information.

8. Conclusion

Conflict-of-interest regulation in system operations is designed to protect the independence, neutrality and credibility of electricity-system decision-making. It is especially important where a system operator is also involved in other parts of the electricity value chain.

South African cases such as Eskom v Sonae Arauco, SIU v Mazibuko, Eskom v Babcock and Eskom v Vaal River Development Association demonstrate different aspects of the problem: technical system-operation duties, employee conflicts, procurement integrity and public accountability.

The central principle is that system-operation decisions should be based on objective Grid Code requirements, statutory duties, system security and legitimate public-interest considerations, supported by disclosure, recusal, oversight and review mechanisms where conflicts arise.