First of all, If the list of areas, you want to target, is not in hundreds I'd suggest you to create separate static landing pages. Do not use script for auto-creation or on the fly creation of pages.
Secondly and most important thing is, content on all of the landing pages should not be too similar, otherwise they will be marked as Supplement Results in Google. So, best thing is to try keeping content on all pages as unique as possible, do not only change the city (area) name but also other text should be different.
Third, change your URL format to:
plumbingsite.com/san-jose-water-heater-installation/
plumbingsite.com/oakland-water-heater-installation/
I suggest you to use hyphens (-) instead of underscores ( _ ); even though search engines, today, are smart enough to parse different words in URLs even without these separators, but I personally have seen better results with hyphens. You might need to read
Dashes vs. Underscore by Matt Cutts, a Google engineer.
Also, always
try to keep the different files in separate folders, and use keyword in folder name instead of file name. I mean instead of domain.com/keyword-here.html .. you should use domain.com/keyword-here/
Advantage? The biggest advantage comes when you want to change the technology used to develop site. For example, later, if you want to switch to .asp or .php instead of .html ... you will need to change the files names and you will loose the PR and ranking (if any lol) .. you may be able to use 301 redirect at that time but its not a perfect solution, you will still experience the fall in hard earned ranking.
But in case you are using folders, you can put index file with any extension in the folder and you will never need to worry about fall of PR or ranking.
And to me, folder names looks tidier than the file names, because of the damn extension in them.
Hope it helps.
