The ancient Romans understood the principles of water power very well

IDENTIFYING THE PARADOX
The Romans were adept in their understanding and utilization of the principles of waterpower.
Evidence : In the outer areas of their empire they made a lot of good use of water as an energy source.

The line of reasoning here is: Given the knowledge the Romans had and the extensive use they made of that knowledge in the outlying areas, it is surprising they did not utilize the same knowledge to harness waterpower in regions dominated by large cities where the necessity to do so might be expected to be higher than in the outlying areas. This is the paradox we need to resolve.

RESOLVING THE PARADOX
Second line of reasoning

1. It is possible that the regions dominated by the city did not have the water resources at hand that were required for making use of waterpower.
2. It is possible that the use of waterpower in the regions dominated by the cities was expected to have some negative impact on these cities and hence the Romans did not use waterpower in such regions.
3. It is possible that the use of waterpower was significantly less economical in the cities than the use of other sources of power and hence the Romans did not use it in the cities.

ANSWER CHOICE ELIMINATION

A. The ancient Romans were adept at constructing and maintaining aqueducts that could carry quantities of water sufficient to supply large cities over considerable distances.
(This choice tells us that water could be supplied to the cities over large distances. However, this choice does not explain why the Romans did not use waterpower in the cities even after they could get the water to the cities. The paradox is not about water supply but use of water as an energy source. This choice is therefore, out of scope.
Incorrect Choice)

B. In the areas in which water power was not used water flow in rivers and streams was substantial throughout the year but nevertheless exhibited some seasonal variation.
(This choice tells us that it was possible for the Romans to harness waterpower in the cities and yet they did not do so. This choice increases the discrepancy and is the opposite of the required answer choice.
Incorrect Choice)

C. Water power was relatively vulnerable to sabotage but any damage could be quickly and inexpensively repaired.
(This choice has nothing to do with usage of water power and is totally irrelevant.
Incorrect Choice)

D. In most areas to which the use of water power was not extended other more traditional sources of energy continued to be used.
(This choice tells us what was done in the scenario when water power was not used in the cities. It does not explain why the water power was not used in the first place. This choice is out of scope.
Incorrect Choice)

E. In heavily populated areas the introduction of water power would have been certain to cause social unrest by depriving large numbers of people of their livelihood.
(This choice is in line with explanation 2 given in our second line of reasoning.
The regions dominated by large cities can be expected to be heavily populated. The use of water power causing unemployment serves as a good reason to not use water power in such areas.
Correct choice)