The paper presents a new technique for the automatic generation control of interconnected power systems. The proposed technique is developed for designing the controller using the concept of dual-mode control in the PI controller such that the proportional mode is made active when the rate of change of the error is sufficiently larger than a specified limit otherwise switched to the integral mode. A digital simulation is used in conjunction with the Hooke-Jeeves optimization technique to determine the optimum parameters (individual gain of proportional and integral controller) of the PI controller. The Integrated Square of the Error (ISE) performance index is considered to measure the appropriateness of the designed controller. Case studies justify that dual mode with optimized values of the gains improved the control performance than the commonly used Variable Structure System.