The way I interpret that problem is that the pricing model itself is broken: it should be set up such at the cost of water increases the more water you use; if you are using a family's worth of water for drinking and cooking and showering, then you pay low rates, but if you are using an estate's worth of water then instead of just paying linearly more you should be forced to pay staggeringly more.

Another way to model this which some people will prefer and others will think is worse is that you just charge the correct/high rate for water at all scales but then hand people cash to subsidize their expected requirement for water, which they could choose to spend on water or which they could spend on something else, which maintains incentives to use less than the expected amount of water but which also doesn't cause weird effects in the market itself where people start trying to sell each other water from their different rate brackets.

(edit: Actually, I guess this is sort of how California has been trying to deal with this, with penalties to larger users... but in practice these penalties are of course being given to the people already not using much water and are not being levied against the richer people who are using tons of water :/. Here is an article about this from the New York Times, "In California, Stingy Water Users Are Fined in Drought, While the Rich Soak".)

http://www.nytimes.com/2015/11/22/us/stingy-water-users-in-f...