2010 International Conference on Life System Modeling and Simulation, LSMS 2010 and the 2010 International Conference on Intelligent Computing for Sustainable Energy and Environment, ICSEE 2010, Wuxi, 17-20 September 2010 ; This paper proposes an optimization model for interconnected Microgrid with hierarchical control. In addition to operation constraints, network loss and physical limits are addressed in this model. As an important component of Microgrid, detailed combined heat and power (CHP) model is provided. The partial load performance of CHP is given by curve fitting method. Meanwhile, electric heater, which supplies heating via electricity, is considered in the model to improve economy of Microgrid operation. The proposed model is formulated into an mixed integer nonlinear optimization problem (MINLP). As an effective tool of nonlinear optimization, particle swarm optimization (PSO) is employed to optimize the operation schedule to minimize the total operational cost of Microgrid considering the jointly optimization of CHP, electric heater and heat storage. Result shows the availability of the proposed algorithm to the model and methodology. ; Department of Electrical Engineering