An observer-based sliding mode fault-tolerant controller is developed in this paper, which is applied to an interconnected power system with a hybrid energy storage system (HESS). The model of the interconnected power system with HESS is introduced first. An observer is then proposed to estimate the unknown but bounded load disturbances and the actuator fault. The sliding mode fault-tolerant controller is further designed based on the observer ensuring that the area control error of the interconnected power system asymptotically converges to zero. The stability and the convergence of the whole system are proven based on the Lyapunov stability theory. Finally, the effectiveness of the proposed fault-control scheme is demonstrated through simulations.