All government rules already have "teeth"

Because of the government caused water shortage, we "customers" (read: mulcted taxpayers) must not use goods in a way that the government Rulers think is evil. Soon, the Exeter government's water restrictions will have "teeth," which will fine naughty taxpayers and even shut off their water supply.*

First, any real producer of goods would be ecstatic when demand for a good is high. If Poland Springs produced "municipal" water, they would encourage us to use as much water as we like. There'd be commercials for us to water our lawns, wash our cars, and have water balloon fights. High demand would stimulate increased production. More water would be available. There would be no "shortage" of water because a company has far more foresight than a bunch of tax-funded civil servants. 

But, instead, we get threatened with robbery not to use a good. This is an important lesson: every demand of government is backed up by physical force. Don't forget that.

*It's also useful to point out some hypocrisy. The same people who support these punishments would be outraged if a private company prohibited someone a basic necessity like water. In fact, this is the very reason why so many people support all the islands of socialism in society: water production, utilities, roads, etc. 

There is no water shortage...

...in the marketplace. Go to any supermarket, and you can buy all sorts of water: sparkling, spring, flavored, boxed, bottled, canned, whatever you please.

It's only when a good is regulated by government do we see shortages. This is best summed up by Say's Law: markets tend to clear. Supply tends to equal demand, and the resulting price is the market price. When government imposes a price ceiling on a good, there will be more demand that supply. Only governments create shortages.

If Exeter's water supply was owned and operated by private companies, prices would move freely as supply and demand fluctuate. When there is a drought (supply decreases), the market price will increase as demand falls (along the demand curve, all else equal). This is the natural and peaceful way to conserve water. Further, high market prices will encourage production of the very good that has limited supply. Entrepreneurs competing for profits actually increase supply and eventually lower the price.

Instead, we have a problem caused by intervention: government ownership of water creating a shortage. Instead of ending the government ownership, another intervention is applied: political rationing. So, instead of consumer demand and conserving water, we have the Town Rulers determining what we can use and when.

They are so wise.

On the market, there are no shortages

Newmarket has a water shortage. To be clear, a shortage occurs only when there is a legal price ceiling that is below the natural, market price of water. As such, shortages are induced by governments. On the market, when the supply of a good is limited, its price rises and people conserve the good naturally. For some reason, this is considered evil (those nasty price gougers!), but it’s the only peaceful way to allocate goods. And, in fact, it is beneficial because a higher price will be an incentive for more producers to increase the supply overall. 

In the case of government-owned water, however, when there is a “shortage,” the residents are the culprits. They are the bad people who water their lawns too much or wash their gas guzzling cars, or whatever. It’s a bit odd how it is considered evil to charge a higher price for a good, yet it is not evil to prohibit, under the force of law, use of the good.  

See Murray Rothbard and Bob Wenzel on this matter.