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This paper presents a new algorithm for the optimal long-range generation planning for a thermal system with pumped-storage plants. The algorithm is based upon the analytical production costing model developed under the assumption of Gaussian probabilistic distribution of random load fluctuations and plant outages. The optimization problem consists of the master problem to determine the annual investment, and the pumped-storage subproblem to determine the optimal pumped-storage operation. The master problem is formulated as a Hamiltonian minimization problem, and the pumped-storage subproblem is solved using the concept of peak-shaving operation on the original load curve.