I don’t see that anybody else has mentioned it so I’ll try it, but a 2-dimensional approach (controversial in and of itself, I know, but I think it should work well here here) might clarify things a bit.

According to Kripke, the word ‘water’ is a rigid designator: it picks out H2O in all possible worlds. That’s why it’s necessary. However, there’s still a felt sense of contingency, in some sense of the phrase, water might have picked out something else, XYZ for example.

This is why 2D approaches distinguish between a terms/propositions primary and secondary intensions (I’m gonna use David Chalmers model because that’s what I know best, but there are other ones). Possible worlds can be construed in two ways - either as circumstances of evaluation or as contexts of utterance. With regard to ‘water is H20’ the former corresponds to the Kripkean sense of necessity, and the latter corresponds to the felt contingency.

So if twin earth is considered as actual, then water picks out XYZ in all possible worlds.