Also, since water and services are being discussed as a pair, they should logically be treated as a compound subject requiring a plural verb; thus, the singular verbs exists (in B and C) and is (in D) are wrong.
I interpret the explanation in this way: OG desn't say because of "or", the sigular verb is wrong.The fact that the singular verbs exists and is are wrong is caused by illogically treating water and serves as sperate subjects instead of a compound subject.