Recent droughts and heat waves have focused public attention on the vulnerability of the U.S. electricity infrastructure. If severe drought and heat wave conditions were to occur simultaneously, grid impacts could be extreme due to the compounding effects of supply-side and demand-side impacts. For example, high temperatures and humidity drive up the peak demand from air-conditioning services, while high temperatures reduce the output of combustion turbines. Drought conditions can result in low river flows and higher stream temperatures, affecting the operation of water-cooled thermal power plants. The combined effect could reduce the overall generation capacity just when demands are especially high. Since climate change is expected to increase the frequency and severity of extreme events such as droughts and severe heat waves, the grid may be exposed to conditions rarely experienced before, especially if drought and heat waves are coincident. This research quantifies the potential impact of increasingly severe heat wave scenarios on the U.S. Eastern Interconnection grid while simultaneously exploring scenarios for the compounding impacts of water-cooled power plant deratings. The analysis couples increasingly severe regional heat wave scenarios (expressed as hourly temperatures on the 1/8th grid) with 1) a building energy demand model that simulates weather-sensitive demand in residential and commercial buildings at 1/8th degree resolution, and 2) a power plant operations model that dispatches generation to meet the heat wave-induced demand from (1) while also including the impact of high temperatures on combustion turbine output and derating scenarios of steam turbines with once-through cooling (OTC) to represent a range of potential impacts due to coincident drought. Impacts on the grid are quantified in terms of shifts in generation dispatch, emissions (CO2), and cost, as well as shrinking reserve margins.