I am sure that at least 80% of the water bill is their usage, but they are only paying 60%.My tenants offered to pay more for water this month because the bill was really high.

question (as I am new to this) why not turn the home right next to it,increase the land they have.So they can make a shed and extend their garage so you can increase the property size and usage ?

For what it's worth, the building I managed was all converted to showers to eliminate tub overflows, and minimize water usage which was paid by the owner.

They seem pretty simple but I’m using those forms for my first property and wasn’t sure if it needs to be more detailed for my specific area or usage?

@Avvy Morales  Usually the water company will notice when water usage is constant and high for a period of time and contact the person on the bill. 

But they have no hot water.Also, because I know this conversation is coming soon, am I obligated (again morally or legally) to pay any excessive gas charge, if they charge her for her full "usage"?

@Kenneth Garrett is right too overall rehabbing bathrooms and kitchens will raise your usage value higher than almost anything else apart from extra square footage or if you have limited space and too few bathrooms putting an extra bath in if you don't have enough room for an extra bedroom is a good choice as long as it doesn't contribute to any functional obsolescence ( that is as long as putting a bathroom in won't make the rest of the rooms too small for them to be usable)I would not agree with siding unless the exterior really needs a facelift and then I would just repair and paint unless you need to weather protect.

For example, the tenant will pay a portion equal to the average of her last three months of water usage. 

Might be because of Californians being more drought-sensitive, but people are more careful about water usage these days.But, to be honest, I'd kill to have one, myself.

Or simply have them turn the valve located on the wall clock-wise until closed to prevent excessive water usage.