Generation scheduling is an important component of power systems operation in a market environment. Electricity demand in different areas depends on local marginal prices in the wholesale market. The paper presents a model for mid-term optimization of electricity generation in the hydrothermal power systems. The scheduling aims to minimize total production cost. Elasticity of consumer demand is taken into account in the model. A mathematical formulation of the problem supposes the application of dynamic programming method. An algorithm for the dynamic programming application is developed. Efficiency of the algorithm is demonstrated by the generation scheduling for a 14 bus system.