i like what you are saying, just a few modifications I would make:

-Water control and regulation should be based on watersheds. all organizations operating in a given watershed are beholden to the laws of that watersheds own regulator. this would allow for actual management of the resource and protection from exploitation.

-there would need to be a strong incentive to work together with other municipalities and not be antagonistic. I am unsure what that would look like, but when you reduce central power, smaller powers can attempt to oppress others more easily.