This paper presents a design and simulation of a full order optimal controller for Automatic Generation Control (AGC) in a deregulated power system environment, where utilities no longer own generation, transmission, and distribution. It focuses on incorporating the effects of bilateral contracts between multiple generation companies (Gencos) and distribution companies (Discos), using a disco participation matrix to visualize these contracts. The results indicate that the full order optimal controllers significantly outperform traditional integral controllers in achieving zero frequency deviations and maintaining scheduled tie line power flows.