This paper presents an efficient decomposition-based optimization method to optimize the hourly combined heat and power (CHP) production and power transmission between multiple areas. The combined production and power transmission problem is decomposed into local CHP production models and into a power transmission model. The CHP production models are formulated as linear programming (LP) models and solved using a parametric analysis technique to determine the local production cost as a function of power transmitted into or out from each area. To obtain the overall optimum, the power transmission problem is then formulated in terms of the parametric curves as a network flow problem, and solved using a special network Simplex algorithm. The decomposition method has been tested with different sized artificial problems. The method can be used in situations where it is necessary to solve a large number of hourly production and transmission problems efficiently. As an example, the method can be used as part of long-term planning and simulation of CHP systems in different cities or countries connected by a common power market. (C) 2016 Elsevier Ltd. All rights reserved.