This paper presents an H2-optimal power regulation policy for balancing authorities to provide regulation services using both generation and load resources in the presence of significant amount of intermittent renewable generation. The optimal controller minimizes total economic surplus losses due to deviations from the schedule because of generation contingencies. The results show that the optimal controller outperforms the conventional ACE control policy by 1) providing faster return to the schedule under varying demand response levels, 2) reducing the cost of using reserve units for regulation services, and 3) minimizing economic losses from the surplus-maximized schedule. Show Partial Abstract