Abstract: An optimal control strategy of electric energy storage system for responding AGC control signal is proposed based on AGC compensation mechanism of Huabei Area in the paper. The objective of optimization model is to maximize the net AGC revenue, and capacity degradation cost of storage system due to frequent cycling during responding AGC is modeled. AGC compensation based on ancillary service compensation policy for Huabei region is formulated in the model as well, and PSO algorithm is applied for solving the optimization problem to provide control mode of power output for energy storage. In the case study, a chronological simulation of output control for a Lithium Ion battery storage system is performed by using a series of actual AGC control signal, in which the control strategy of energy storage system is optimized for each AGC control cycle, and total net AGC service revenue during the simulation period is calculated. In the end, the investment income of energy storage system for frequency regulation is evaluated.