One of the problems with recycled water is that it's hard to ensure that it's clean when it leaves. Sure, the processes are great and it ends up cleaner than the stuff out of the dams, but it just takes one idiot hitting the wrong button or connecting something up incorrectly for "TOXIC: Do Not Drink" water to end up in the "Send To People's Homes" pipe.

But power plants need water and it doesn't matter very much if someone screws up the water purity. That means water from the dams isn't going to be used for power production, screw ups at the water plant won't kill babies, and in a /real/ emergency, all it will take is a little bit (only a few million dollars) of plumbing to use the water plant to send water to homes.