Water conservation and economic theory

I heard a little local piece on npr yesterday about water restrictions in Atlanta. The interviewer asked whether or not we should charge higher prices for water, just like gasoline, in order to regulate usage. Now, here's where I wish I had a degree in economics. This is my understanding of the situation: (1) We live in a capitalist society and, by these rules, supply and demand are king and queen. Regulation is based exclusively on price, and (2) We don't actually live in a strictly capitalist society because we don't like to see our poor, elderly, mentally ill, and disabled citizens die in the streets. (3) Therefore, while capitalist rules can govern issues like gasoline, lack of which hurts but doesn't kill, regulations are in place to dictate use of necessary resources LIKE WATER.

Now, if there's someone out there who knows about this, it would be good to hear from you. The interviewee in this particular npr story pointed out that, in Cobb County, the single largest user of water is a dude. A rich dude who has a lot of acreage that he likes to water. He can afford to pay the bill and he likes his grass to be green. On the other hand, working people in Atlanta are already feeling the pinch of high water prices and shouldn't have to drink rainwater to survive. Now, granted, we're probably a long way from having to drink our own urine but people need showers and clean clothes to keep their jobs. Also, kids enjoy slip'n'slides in summer and shouldn't have to give those things up while other people are maintaining acres and acres of green green grass (e.g., golf courses). So, to me, this is where regulations come in. It's related to the tragedy of the commons and the prisoner's dilemma. Also, I'm not talking fines, I'm saying, you turn off people's water when they can't pay their bills. Turn it off when they over-water. They can drive their SUVs to the closest motel and shower there...like mine...shown below...it gets good gas mileage people! And it's a LEV (low emissions vehicle). Fine! I can drive my SUV to the closest motel and shower there...my lawn is brown. I just want you to know that, for the record.