The real problem is that the price of water in California, as in most of America, has virtually nothing to do with supply and demand. Although water is distributed by public and private monopolies that could easily charge high prices, municipalities and regulators set prices that are as low as possible. Underpriced water sends the wrong signal to the people using it: It tells them not to worry about how much they use.
Importantly, note that David’s analysis also applies to electricity; underpriced electricity sends the wrong signal to consumers.
David’s column also offers a policy proposal for steeply inclining block pricing of water, and it’s a good one. I encourage you to read it