What about a bimodal model, people have a right to a reasonable volume of water. Companies have to both pay for the water (at the price-fixed rate) and have to acquire a right (like a ration token) to have water. People then would always be able to afford to buy enough water to sate them, but companies need to buy their tokens in order to get water. Most people would probably sell their tokens back to the water company, who would sell them on at a profit. But equally you could save them for times of water crisis when the token price soars and pay off your own water bills.

Tell me why this is stupid.

That proposal is just a complicated and inefficient bureaucratic reinvention of a supply & demand marketplace. Just let S&D do its thing and take its course, and people will get water.

Some people will get water. And some will get priced out of the market.

Higher prices INCREASE the supply. I.e. MORE people get water.

Or same people get more water.