Pumped water has been used for years to store energy. As the article states, it's not about efficiency, but about alternatives: What are the options, what are the characteristics and costs of these options?

A water tower is not very big when talking about municipal power generation.

but the potential energy can be used:

Pint-size hydro power on tap. Rentricity, a start-up in New York City, has come up with a hydroelectric generator that lets municipal water facilities generate power.

Granted, they are using excess pressure within the system to run the generators. Nonetheless, I have seen city water delivered at 80 PSI (had to install a pressure reducer)!