This paper presents the analysis of Automatic generation control (AGC) of a two-area interconnected hydrothermal system under open market scenario. It also involves the optimization of integral controller employing ant colony system algorithm (ACS). Open transmission access and the evolving of more socialized companies for generation, transmission and distribution affects the formulation of AGC problem. So the traditional AGC two-area system is modified to take into account the effect of bilateral contracts on the dynamics. The behavior of real ants has inspired the development of the ACS algorithm, an improved version of the ant system (AS) algorithm, which reproduces the technique used by ants to construct their food recollection routes from their nest, and where a set of artificial ants cooperate to find the best solution through the interchange of the information contained in the pheromone deposits of the different trajectories. This metaheuristic approach has proven to be very robust when applied to global optimization problems and is favorably compared to other solution approaches such as genetic algorithms (GAs) and simulated annealing techniques. Gain setting of the integral controller is optimized using the ACS algorithm technique following a step load disturbance in either of the areas. The performance of the proposed approach outstands positively when compared to GAs, obtaining improved results with significant reductions in the solution time.