The water in the reservoir is considered stored energy. When the gates open, the water flowing through the penstock becomes kinetic energy because it's in motion. The amount of electricity that is generated is determined by several factors. Two of those factors are the volume of water flow and the amount of hydraulic head. The head refers to the distance between the water surface and the turbines. As the head and flow increase, so does the electricity generated. The head is usually dependent upon the amount of water in the reservoir.
Reference: http://science.howstuffworks.com/hydropower-plant1.htm
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