This paper deals with Automatic Generation Control (AGC) of a two area multi-unit hydrothermal power system with appropriate generation rate constraints (GRC). In the two area system, there are two thermal systems and one hydro system has been used for the study. The effect of capacitive energy storage units included in each area and the performance of AGC is studied. Dynamic responses of frequency deviations of each area is compared with other area and tie line power deviations are studied under 1% load disturbance for comparison of performance. The integral gains optimum value without and with CES units are obtained using Teaching learning based optimization Algorithm (TLBOA) by minimizing an objective function which is quadratic in the deviation terms. It has been observed from the analysis that, following small load perturbations, the dynamic performance of AGC has been improved significantly since the area frequency oscillations and tie-line power deviations have been damped out in the presence of CES units. © Research India Publications.