This report presents the initial development of a methodology for determining optimal reservoir storage strategies within a river basin. The methodology employs a computer model OPTRES developed by linking an existing simulation model and an optimization technique. The simulation model describes the operation of a river-reservoir system to satisfy various demand scenarios. The optimization technique determines appropriate sizes of reservoirs to be evaluated by the simulation model. Given a number of possible reservoir locations, the combined simulation-optimization model determines which locations should be developed and the appropriate sizes of the reservoirs at each of the locations, based on minimizing or maximizing a user specified objective function.