Using price incentives to allocate scarce resources is a core tenet of economics but may result in unpalatable distributional outcomes. This paper analyzes the efficacy of prices as a means of inducing water conservation during severe drought. We study the introduction of surcharges enacted within existing nonlinear rate structures. We embed machine learning counterfactual prediction methods within a demand framework to isolate exogenous price variation, finding that households exhibit significant demand response despite the temporary nature of surcharges. However, surcharges alone cannot explain a majority of the conservation observed despite steep price increases. Customer-specific pricing undercuts scarcity signals by shielding large users from binding price increases, and surcharges do little to reduce the regressivity of water rates. Simpler rate structures can achieve greater efficiency and equity, especially if enhanced by progressive lump-sum transfers.