In a heavy saucepan, whisk the egg yolks, water and lemon juice together for a minute or so. Put the pan over moderately low heat and whisk continuously, making sure to get into the edges of the pan. I found it useful to sometimes tilt the pan sideways while I whisked.
I always wonder how I'll know when something like this done, because you basically want to cook the egg yolks gently but NOT overcook them. Pepin said you would notice the yolks get thick and smooth and would see the bottom of the pan while you were whisking. Well, I could see the bottom of the pan when I first started so that didn't help much, but after a few minutes I definitely could see the yolks getting thicker and then I could see WIDE stripes of the bottom of the pan. I cooked and whisked another minute to be sure.
Turn off the heat (and if you're on an electric stove remove the pan from the heat), then add in a small chunk of the softened butter and whisk it in. Keeping adding butter, a chunk at a time, whisking thoroughly each time. I stopped at about 6 ounces and added a dash of cayenne pepper, stirred and tasted. This is when you would add more salt and pepper. I added a few more drops of lemon juice to perk it up a bit.
I left this off the heat and whisked now and then, but then put back on low heat when the eggs were about halfway through