Pumping water into watermills makes even less sense than the unmanned mode.
I think it does make sense since source water blocks have no "energy stored" in them because the water's not flowing. Pumping water being under pressure in pipes (and so containing some kinetic energy) is IMHO quite enough for rotors to convert kinetic energy into electrical.
Real watermills would require a big dam + waterfalls + watermills with rotors on the end of waterfall to transform gravitational energy into kinetic and then into electrical.
Haven't I proposed this with my Hydroelectric Engine? If you should look in its concepts then you'll see that the setup for it to work contains a waterfall (made with 1-5 flowing water blocks) + watermill + integrated rotors (via the crafting recipe).
And this is EASY TO EXPLOIT, laggy and completly OP.
Maybe, but I reckon this is a good way to power secret underground bases.