The rulebook says a large monster that moves and expands into terrain must suffer the effects of that terrain. The effects of a water terrain is that the figure must pay two movement points so what happens when the large monster expands into water without any movement points?

Key point is this:

"When a large
monster ends its movement adjacent to a water
space, it may freely place its base in the water
spaces without suffering any movement penalty." (p. 18)

Since you shrink the large monsters down to one square for moving, if you end that one square outside water, you can expand into water without extra cost, but if you end the one square in water, you have to pay the cost to enter that square before expanding.

Thanks, Dam. Very helpful.