Your landlord has probably violated multiple landlord-tenant and consumer protection statutes. You are likely entitled to payment of multiple damages and your attorney's fees as well. Consult with a landlord-tenant attorney to learn more.
Write the letter as factual as possible, detailing the fact that you had to pay the water bill in order to keep the water on, include the amount of the bill, and tell him that you are deducting that amount from the rent. Then send him a check for the balance, or if the amount that you paid is more than one month's rent, give him the calculations and tell him when and how much rent he will receive in the future. Write on the bottom of the letter that it's being sent certified mail, return receipt requested. If possible, get the forms in advance from the post office, so that you can put the actual certified mail number on the letter. Keep a copy of the letter. I prefer paper copies, but if you want to keep an electronic copy, make sure that it has a hard date on it (not whatever date it is when you open the file) and back it up, so that you won't lose it in case of a computer failure.
You may have other claims, as other attorneys answering have suggested. You should talk to a lawyer who can review all of the history of the case, your lease, and whatever other information you can provide. I'll be happy to talk with you.