Congrats on your new pet! The setup for a watersnake is not much different than that for a kingsnake or other terrestrial snake; dry substrate in most of the cage, UV and heat sources, and a nice big water dish that he can soak in. Watersnakes will generally not get skin problems unless the whole cage is too damp.

Guppies or rosy reds are fine for now; it would probably be economical for you to set up a breeding tank of guppies to keep him fed, and that way you'll have better control over the quality of the guppies you are feeding him. Most people try to switch their snakes over to mice; you can try this by scenting a thawed pinky with fish. It may take a while.