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A hierarchical optimization method is presented for an assessment of the potential maximum energy output of the Three Gorges Project and Gezhouba cascade hydropower stations in China. The optimization incorporates a detailed description of daily load dispatching among different types of hydropower units. The optimization method is divided into three levels to render feasible the computation of the global optimization problem. In levels 1 and 2, a genetic algorithm is applied to optimize discharge and water head distribution between the upstream and downstream reservoirs. Level 1 selects the water levels at the beginning of each month in a year. Level 2 selects the water levels at the beginning of each day in a month. Level 3 solves a linear programming problem for allocation of water among the heterogeneous types of hydropower generation. Hydrological data of the years 2004 and 2005 are used to perform an optimized power generation process within the operating rules. The maximal annual energy production could be approximately 61 and 87 MWh higher than the actual recorded energy production in 2004 and 2005, respectively. [ABSTRACT FROM AUTHOR]