What do you think is happening to the water not being utilized in the production of power? I assumed it's still being run downstream, just not through the power producing turbines.

I'd expect there's not a big effect on the ultimate amount of water being released downstream either way.

They let the reservoir fill up for when the power and/or drinking water is needed later.

The max is like a car engine’s redline. That the car can hit it doesn’t mean you should at all times.