ABSTRACT: A study was undertaken to see if benefits from water supply could be increased by utilizing price‐usage information in reservoir design studies. Three pricing policies were examined. The first policy assumed no price‐use relationship, and quantity demanded was based on existing community usage with a low water rate. The price of water was set to recover system costs. A price‐use relationship was assumed in the second policy and the water rate was constant. The price of water was determined from the associated system which provided maximum expected net benefits. The third policy assumed the price‐use relationship and the price charged for water during each billing period was a non‐linear function of storage which increased as the amount of water in storage at the beginning of the period decreased.It was found that the use of the conservation pricing policies substantially reduced storage requirements while providing demonstrable net benefits to the community and a large average supply. The conservation pricing policies substantially lowered the average price paid for water. The effect of uncertainty in consumer response to changes in price was studied by using a probabilistic price‐use relationship. This uncertainty did not significantly reduce the effectiveness of the conservation policy. It was concluded that demand management by the use of a proper pricing policy could significantly increase net water supply benefits to a community.