David Zetland debunks The Water Shortage Myth:
As it stands, Los Angeles households pay $2.80 for the first 885 gallons they use per day. That’s enough water to fill 18 bathtubs. The next 18 tubs cost $3.40, which is only 20% more. Most L.A. households don’t even see this price increase, since the average household of three uses just 350 gallons — about seven bathtubs — each day. For that water, the household pays only $35 a month. If they use twice the amount, the bill merely doubles.I propose a system where every person gets the first 75 gallons, or 1.5 bathtubs, per day for free but pays $5.60 for each 75 gallons after that. Under my system, the monthly bill for the average household of three would come to $95.
My system is designed to reduce demand rather than cover costs. Revenue paid by guzzlers would cover the costs of those who use only a small amount of water. Any leftover profits could be refunded to consumers or used to enhance the quality or quantity of the water supply.
Incidentally, his system wouldn’t reduce demand — it would reduce the quantity demanded. His system actually reduces supply — the amount provided at a given price — but that doesn’t sound good to non-economists.