In this paper a simplified method is presented for solving the classical economic dispatch problem. An exact formula for calculating penalty factors associated with each generator on dispatch is derived in a simple way without using distribution factors of any origin. The minimal storage and computational advantages of the decoupling characteristic of power systems are then exploited to further simplify the calculation. Results of the proposed method applied to sample power systems are given to demonstrate its usefulness as both an on‐line and off‐line computational tool.