This is a well-known problem, though I've seen people who claim it's
not a problem. One suggestion that has been made is that it has to do
with new construction. Water connections are checked at the beginning
of each month. It has been suggested that this problem may be caused by
placing a building or zoning some property, and reaching the start of
the next month occurs before you have water delivery to that part of
town set up. As long as there's any portion of your town that doesn't
have water, your town is considered dry, no matter how much of a water
surplus you have in the parts of town that do have water connections.
As a result, your water contract fails.
This suggests that you should always build the water systems first, and
not build anything else till you have actual water being delivered
there. However, I've tried this, without success. The only approach
I've found that works is to refuse to sell water in the first place.
Sorry!
I just did a quick review on Google of older messages on this newsgroup
containing the phrase "water deal". The concensus seems to be that the
critical problem is that you should never build a water facility (pump,
water tower, desalinization plant, etc.) that isn't already connected
by pipes to your neighbor at the time when you place it. Build
connecting pipes first, then build the facility.
It's also been suggested that you should maintain multiple connections
to your neighbor, so that if one of them is under repair at any time,
the other one is still usable. Make sure that water can get from all of
your water sources to each of your neighbor connections.