If the water is pumped, any energy you extract with your generation would have to be supplied by the pumps. Add in the inevitable losses and the additional energy into the pumps will exceed the energy out of the generation. Where the water flow is entirely gravity powered there are already locations that use turbines for pressure reduction and generate power in the process. Any energy in this system is provided by the pumps, unless there is a net elevation difference between the reservoir and the town. So any electric energy generated would come from the electric energy used to run the water pumps. Add in the losses, and you will be using more energy than is being produced. I once worked on a project to install a small hydro turbine on the outfall of a sewage treatment plant. In that case, the elevation difference between the plant and the ocean provided the necessary head to run the turbine. Both davidbeach and dpc are correct, the arrangement you're discussing uses more energy than it produces. However, having a reservoir run a turbine under peak power conditions and then refilling the reservoir under low power conditions can be economically viable.

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