The paper deals with the analysis of automatic generation control (AGC) of a two-area reheat thermal system considering a variable structure controller (VSC) based on the sliding mode concept. A systematic method is suggested for obtaining switching hyperplanes. Optimum gain settings of the variable structure controller are obtained, both in the unconstrained (neglecting generation rate) and the constrained (considering generation rate constraint) modes, using the integral squared error (ISE) technique. Investigation reveals that there is a significant improvement in system dynamic performance with a VSC over that with an integral controller. Moreover, the variable structure controller is found to be quite insensitive to wide variations of system parameters.