A system and method of combining pumped hydro and thermal energy storage is disclosed that has upper and lower fluid storage reservoirs. The reservoirs are used as a pumped energy storage system in which excess electrical power is stored as gravitational potential energy by using it to transfer fluid up to the upper one. At a later time, the fluid is run back down through a turbine under the force of gravity to generate electricity. Either, or both, fluid storage regions are also used to store thermal energy transferred into the stored fluid via liquid-to-liquid heat exchangers. The stored thermal energy is later extracted out to be distributed in for use in either directly heating structures or to improve the heating efficiency of one or more heat pumps in a district heating system. The fluid may be water, or it may be any suitable high-density fluid such as drilling mud.