The main thing that jumps out at me is total disrespect for your rule and the need to conserve water because us Californians are in a serious drought.
We have 5 in our household and we are all taking 5 minute showers and cutting back in so many other areas. It really pisses me off to hear that others in our state are not taking the drought warnings seriously.
I would have one last chat with him and give him another chance. But, during this last chat I would let him know what consequences will be rolled out if he continues to choose to disobey the house rules.
I would then wake up at 5:20 with him this next week to see that he is obeying the rule.
After 5 minutes I would knock on the door to give the 5 minute warning. If he does not turn it off then either I walk in and shut it off for him or the water heater is turned off. Tell him up front that you will be doing this.
Our city has free shower timers that we picked up. Each shower in our house has one. It is just a simple timer that sticks onto the shower wall. Look into one of these or have him set his own timer.
I would also tell him we will start deducting money from his chore money or fun money you give him to help pay for the water bill. Or put him to work to pay for the increased water.
We are being threatened with hefty fines if we go over our allotted water amount. The amount of water allotted to each home is based on 2013 consumption with a 25% reduction. I don't know if your city is threatening this but let your son know it is happening around the state and could be happening soon in Napa.
We are also firm believers in positive discipline as well. Sooo, I would come up with a positive reward for him if he complies with the strict water guidelines. Find something that would be a good incentive for him.
Good luck!!