The annual and inter-annual runoff characteristics of Banqiao Reservoir from 1974 to 2011 were analyzed by means of modulus ratio coefficient curve and state transition probability. The dynamic programming method is used to optimize the operation with the maximum power generation function as the objective function, and the fuzzy comprehensive evaluation based on analytical hierarchy process (AHP) is used to evaluate the proposed scheme and determine the best solution of efficiency-improving and capacity-expanding transformation of the Banqiao reservoir power station. The results show that the average annual generating capacity of Banqiao Reservoir increased to 8.009 million kW·h and the economic benefit reached 622,300 yuan per year, and both the water resources utilization efficiency and power generation efficiency improved. The scheme provides a theoretical basis for the design of hydropower expansion.