This report documents a high-level analysis of the benefit and cost for flywheel energy storage used to provide area regulation for the electricity supply and transmission system in California. Area regulation is an ancillary service needed for a reliable and stable regional electricity grid. The analysis was based on results from a demonstration, in California, of flywheel energy storage developed by Beacon Power Corporation (the systems manufacturer). Demonstrated was flywheel storage systems ability to provide rapid response regulation. (Flywheel storage output can be varied much more rapidly than the output from conventional regulation sources, making flywheels more attractive than conventional regulation resources.)