Water utilities often rely on industrial water supply (e.g. desalination) to complement natural resources. These climate-independent sources of supply allow operators to respond quickly to varying operating conditions, but require them to choose operating strategies, or rules. How does such operational flexibility impact the performance of water supply systems? How might it affect long-term plans for capacity expansion? Possibly significantly, as demonstrated by the analysis of a water supply system based on Singapore. First, we simulate the dynamics of the system under multiple rainfall and operating scenarios to understand the extent to which the operators’ behavior affect system performance. Results show that different operating rules can have comparable impact on the variability in system performance as hydrological conditions. Then, we show that small changes in the operating rules can lead to substantial changes in the capacity expansions, such as the size of a new desalination plant.