Drought in California. OK. Happens regularly. You have a lot of people in an area with not much water, you have a seasonal drought cycle between El Ninas, you have government policies that exacerbate the problem by failing to plan for the cycle, you have environmentalists fighting to protect a fish that doesn't really need protection; pick your explanation or maybe it's just a combination of all of the above. This time around it is quite bad.
(Aside: there as an article recently, can't remember by who, and he suggested that since we have pipelines all over the country transporting petroleum products, how hard would it be to build a pipeline from the upper midwest to California to transport water? Seemed like something worth exploring, anyway.)
Here's where it gets crazy, however.
1) Conserve water. Good idea. Water your lawn on a tighter and more limited schedule, take shorter showers, wash things more efficiently, etc. All great ideas in an area with a water shortage. To encourage recalcitrant water wasters, there can be a $500 fine for wasting water.
2) Keep your lawn green and nice looking. OK. Not a necessity of life, but a requirement imposed by the city of Glendora, who sends out letters warning of a $500 fine if you don't keep your lawn looking green.
Now what? Given the choice between the two $500 fines, what do you do? Personally, I'd consider spending $500 tearing out the lawn and replacing it with stuff that doesn't need much water. The best of both worlds.
So how would a libertarian society deal with this (you knew I was going to go there, didn't you)? How about adjusting water prices based on usage and availability. How about opening up provision of water to private companies? Seriously, when was the last time you went to the store and they were out of Coke or Pepsi? Never, right? That's because Coke and Pepsi have a vested interest in making sure you can always get their products. What vested interest does some bureaucrat have in making sure you have enough water? The correct answer is "None".
What would this system look like and how would it work? How would you make sure that everyone got the water that they needed just to live? Beats me. I don't know what it would look like. I'm not a supply expert. I'm not a water expert. I do know that government has little to no incentive to actually do a good job. They are, for the most part, unelected bureaucrats. They can't lose their jobs, they aren't accountable to their customers, they are average people, some who care, some who don't, some nice, some jerks, who happen to have a job running the water system. Water doesn't flow, at the end of the day they collect a paycheck and head home to barbeque with their family. Contrast that to a private company. Water doesn't flow, customers go elsewhere and they are out of business and out of a job.