Water reservoirs are used to regulate river discharge for a variety of reasons, such as flood mitigation, water availability for irrigation, municipal consumption and power production purposes. Recent efforts to increase the amount of renewable power production have seen an increase in intermittent climate-variable power production due to wind and solar power production. The additional variable energy production has increased the need for regulating the capacity of the electrical system, to which hydropower production is a significant contributor. The hydraulic impact on the time lags of flows between production stations have often largely been ignored in optimization planning models in favor of computational efficiency and simplicity. In this thesis, the hydrodynamics in the stream network connecting managed reservoirs were described using the kinematic-diffusive wave (KD) equation, which was implemented in optimization schemes to illustrate the effects of wave diffusion in flow stretches on the resulting production schedule. The effect of wave diffusion within a watershed on the variance of the discharge hydrograph within a river network was also analyzed using a spectral approach, illustrating that wave diffusion increases the variance of the hydrograph while the regulation of reservoirs generally increases the variance of the hydrograph over primarily short periods. Although stream hydrodynamics can increase the potential regulation capacity, the total capacity for power regulation in the Swedish reservoir system also depends significantly on the variability in climatic variables. Alternative formulations of the environmental objectives, which are often imposed as hard constraints on discharge, were further examined. The trade-off between the objectives of hydropower production and improvement of water quality in downstream areas was examined to potentially improve the ecological and aquatic environments and the regulation capacity of the network of reservoirs. / <p>QC 20170210</p>