Abstract. Reservoir operation plays an important role in economic development of a region. Hedging operations were used for municipal, industrial, and irrigation water supplies from reservoirs in the past. However, hedging operation for hydropower reservoir operation is very rare. A practically simple and useful new form of Standard Operation Policy and a new form of hedging rules for hydropower production are introduced in this paper and demonstrated with a case study for hydropower reservoir operation of Indirasagar reservoir system in India. The performance of optimal hedging rules is compared with that of a new standard operation policies and the superiority (reliability increases by about 10%) of the hedging rules is demonstrated. When the number of decision variables is increased from 5 to 15, energy production increases by 0.7%, the spill is reduced by 16.8%, and reliability slightly decreases by 2.1%. A bi-level simulation-optimization algorithm is used for optimizing the hedging rules. For optimization, Genetic Algorithm, arti cial bee colony algorithm, and imperialistic competitive algorithms are utilized. The results indicate that all the three algorithms are competitive and arti cial bee colony algorithm is marginally better than the other two.