From the California WaterBlog - Drought's No. 1 lesson: modernize water management:
"Most water system costs are fixed; those for distribution pipes, treatment plants and labor don’t vary with the volume of water delivered. Unless most of the monthly bill is a flat fee (which dims price incentives to consumers to use water efficiently), revenues often cannot cover fixed costs during droughts, when extraordinary conservation reduces water sales and revenues. Utilities then must raise rates after the drought."