As I understand it (don't take this as revealed truth):
The nozzle opening should be filled with water and open at least as wide along the direction of rotation as the separation between two blades. You can adjust the flow (and power) by adjusting the opening of the nozzle but you don't want to make it smaller than that unless you're turning it off. Ideally the nozzle opening should be a multiple of the blade spacing, so an essentially constant number of blades are in the flow, minimizing torque fluctuations.
If you don't have enough water supply to keep the the nozzle full you can divide the rotor into sections. (Put a disk into the inner opening, like the ones at the ends of the rotor, to keep the water from moving sideways between sections of the rotor.) A common arrangement is to divide it 1/3 and 2/3, so you can turn on one, two, or three units of water with binary combinations of two valves' settings.
There's no inherent reason you couldn't use 1/7, 2/7, 4/7 for 7 power levels with three on/off controls, etc. if you can't figure out a good way to move one side of the nozzle to adjust the opening along the direction of rotation.
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One nice thing about a banki is that you can put it in a sealed housing with an airtight/watertight shaft bushing and a closed tailstock, get the air bubbles out, and take advantage of ALL of the head (even though the turbine is a few feet above the water exit) by letting the weight of the water in the tailstock suck a vacuum. You can keep your genny above water level even though it's directly connected to the turbine shaft.
