They use the pool at the top almost like a giant storage battery for potential energy and then use it during peak loads.
One of the local lakes rises and falls a foot or more due to this process, depending on time of day. I took the time to figure out how many gallons it look to change the water level by an inch.....this was back in my college days.
If I was smart, I'd have spent the time figuring how much energy pumping all the water back in would've consumed.