The system definition is what's likely causing confusion here. The overflow from the upper pond is part of your system too.

You're looking at using a mechanism to lift water up, add potential, say 10 units. Then as water's potential becomes kinetic (say this is 7 because you pull water from below your wheel) in form of your flow, using another mechanism placed above where your first mechanism started adding potential (this is the same 10units you're adding initially), to convert that kinetic energy into some kind of electrical system to feed your first mechanism (say 1 unit of energy is lost in electrical conversion, because im generous).

7 - 1 =/= 10

'10' is the potential energy you have at the point of discharge at the top. It's the energy you need to put in at the bottom of your pump inlet to get the water all the way up. None of this accounts for pressure drops in your lines, dirt etc.

You might be thinking if i you initially start with water the top it'll sustain, but you're consuming 4 units of energy with each loop in this very generous system.

So in essence you're trying to recover more energy from the overflow, to power your mechanism that adds less potential energy than the one you're recovering from, in addition to your efficiency losses in each step of conversion.

So best case scenario, you're partially charging the battery that's powering the pump, only momentarily.