This paper considers a penalty factor incorporated energy maximization type objective function, in order to reduce the amount of spill during the operation of the reservoir of a hydropower plant. Stochastic dynamic programming (SDP) model with independent inflow process assumption is developed for a hydropower plant located in Japan. SDP models can incorporate the inherent uncertainty associated with the stream inflows better than the deterministic models. Reservoir storage guide curves for typical water years (dry, average and wet years) are identified based on the operating policy. Operating policies with various values of constant of penalty function are obtained and, simulated storage guide curve for an average year is identified. Energy generation versus spill reduction curve may be plotted for various cases as such; a break-even point can be identified based on the cost functions associated with the energy and spill.