The Western Water and Energy Project (WWEP) is intended to evaluate the potential for improving the management of energy and water in the western U.S. through the use of seasonal climate forecasts. As a first step toward this goal, we have evaluated the covariability between hydropower production and seasonal energy demand in the Pacific Northwest (PNW) and California (CA). Using daily temperature and precipitation data in CA and the PNW from 1915-2003 as forcing data for the Variable Infiltration Capacity (VIC) hydrology model, we simulate naturalized streamflows for the Columbia River basin in the PNW and the Sacramento San Joaquin basins in CA. These simulated streamflows, in turn, are used as inputs to the ColSim and CVMod reservoir models, which simulate hydropower production in the two regions. Using these retrospective simulations, we demonstrate that hydropower production in the two regions tends to be positively correlated in time and that anomalies in hydropower production are predictable with long lead times via forecasts of the El Nino Southern Oscillation (ENSO) and the Pacific Decadal Oscillation (PDO). Previous research and retrospective energy consumption data for the western U.S. show that monthly and peak hour electrical energy demand are strong functions of maximum temperature or total heating (cooling) degree days in the PNW (CA) in winter (summer). Using these relationships, we have constructed (using simple regression methods) long time series of monthly energy demand in CA and PNW from 1915-2003, which we have analyzed in terms of the covariability with hydropower for the same period. Winter energy demand in the PNW is shown to be predictable via ENSO forecasts and is positively correlated with PNW and CA hydropower production. Recent research at the Scripps Institute of Oceanography has also demonstrated that summer temperature in CA (and therefore CA energy demand) is predictable using long-range climate forecasts with lead times of 2-4 months. Based on this exploratory work, we are currently evaluating the potential for use of long-range climate forecasts to plan seasonal energy transfers between the two regions. Our investigations to date suggest that by integrating the predictability of energy supply and demand in the two regions, energy management in both regions could potentially be improved. In particular, economic benefits to both regions could result if seasonal or interannual energy transfers between CA and the PNW, which are currently based on fixed seasonal contracts, were instead informed by long-range climate forecasts.