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This paper presents a procedure for solving the short term generation scheduling problem for a large hydrothermal system that includes transmission limitations. The integrated system is divided into a hydro and a thermal subsystem. A reduced gradient algorithm is employed for the solution of the hydro subproblem. This algorithm is specialized to efficiently solve nonlinear network flow problems with additional constraints of non-netwrk type. The thermal subsystem is solved using a fast unit commitment and dispatch algorithm. A case study with the Swedish system is discussed.