This paper proposes a new method for the solution of the short term hydrothermal scheduling problem. The overall problem is decomposed into hydro and thermal sub-problems which are solved independently. The hydro, sub-problem is solved by the proposed enhanced peak shaving method, which allows the incorporation of the coupling hydraulic constraints. The peak shaved load curve is supplied by the thermal generating units. The thermal sub-problem is solved by an efficient simulated annealing algorithm. Numerical simulations on a realistic power system have proven the efficiency of the proposed method. (c) 2007 Elsevier Ltd. All rights reserved.