This paper presents a novel scheme for automatic generation control (AGC) of interconnected two area multi source power generation under deregulated environment. The conventional two-area AGC system is modified to take into account the effect of bilateral contracts on the dynamics. In the considered two area power system, each area contains two GENCOs; first GENCO is a reheat steam turbine with appropriate generation rate constraint nonlinearity and second GENCO is a gas turbine generation. The performances of integral (I), proportional-integral (PI), integral-derivative (ID) and proportional-integral-derivative (PID) are evaluated for the proposed AGC system in the deregulated environment. The gain of the controllers and speed regulation parameters are optimised using differential evolution (DE) algorithm. Differential evolution algorithm is used because of its convergence superiority and easy to implement. The performance of DE algorithm applied to the proposed problem is compared with that of Genetic Algorithm (GA) to establish its optimisation superiority of the former. (C) 2015 Elsevier Ltd. All rights reserved.