The energy concept sheds light upon the hydraulic system that comprises the throttled surge tank, the tunnel and the penstock. The mathematical manipulation of the governing differential equations of water hammer yields an energy (power) equation in point form. By integration with respect to pipe distance, this relation is extended first to an individual pipe, then to the surge-tank system with branching connection. The system energy (power) equation states the relationship between the total (internal plus kinetic) energy, the convective energy, the work done on the system and the energy dissipation. A case study identifies the conversion between the internal and kinetic energy, and quantifies the behaviour and magnitudes of related energy components of the system.