There should be three grades of water:
1) Untreated.
2) Salty (desalinated, but not to full freshwater standards), used for toilets, showers and the like.
3) Potable.
What you're doing with the water should have no bearing on the price and the price difference should only reflect the additional cost of going from #1 or #2 to #3.
You also pay a separate charge for delivering water to your place, this is omitted if you're getting it from a well and don't need delivery.
The base rates are standardized across a watershed (in this case, every place served by the Colorado river), the delivery charge is based on the cost to provide it to you. (Thus the cabins on the other side of the mountain here that lost their water in a wildfire--when the trees burned it not only damaged the pipe but caused land slippage that destroyed said pipe--pay a whopping delivery charge, but otherwise the same price per cubic foot we do.)
Most of Central California for instance isn’t in a watershed that connects to the Colorado in any way.
If companies start paying the total costs (water, carbon)—including externalities—of their raw materials, and pass those costs onto consumers, perhaps things will rebalance.
I'm sure this kind of feedback loop happens in a lot of industries. Companies don't just make what people want, they also make people want things. Throw in regulation too, which limits the shape of what can be produced. I think what it boils down to is that when you say people want X, that want is not unshaped by those providing it plus other external factors, so there can be a path to people not wanting it that doesn't just involve their individual decisions.
companies only make what they can sell. The sell what consumers want. So it is humans. Humans want meat. If they stop wanting meat companies will stop making meat.