This paper presents an endeavor to demonstrate the design, implementation and analysis of an interconnected multi-area multi-unit hydro-hydro power system operating in deregulated environment incorporating energy storage (ES) devices. To efficiently tackle the non-minimum phase characteristic of hydro turbine, optimal controller (OC) is designed using full state feedback control strategy. The efficiency of OC is evaluated under all realistic transactions i.e., poolco, poolco-bilateral and poolco-bilateral with contract infraction, and then the study is extended by introducing the different energy storage devices in the system to compare OC performance in the presence of each energy storage device. Further to analyze the robustness of OC, the system’s dynamic performance is observed by including the nonlinearities of the system as well as throughamplevariation insystem parameters. Simulation results demonstrate that OC is able to meet automation generation control (AGC) requirement for all possible power contracts and thedynamic performance of the system with redox flow battery (RFB) is found superior to the rest of ES devices. Sensitivity analysis along with the performance of OC with system nonlinearities validate its robustness.