After looking at this further, I think it should be done a different way.
First, get rid of the octopus for reasons I describe below. This is a nice, modern panel for which interlocks should be available. Get a generator interlock which interlocks between the main breaker in your panel, and a breaker in the top row. This top row breaker backfeeds to the generator. At this point you are throwing your entire main panel from utility to generator. No need for the $350 octopus, and the interlock will probably be in the $75 range plus a 30? amp breaker for the generator. This will allow you run any load in the house on the generator, as long as you keep loadings modest.
Now, what to do about the water heater? First, contact the power company and talk about your tariffs. If the special tariff from the separate meter is not useful to you, you have enough cable length there to simply relocate the water heater into the main panel; done and dusted.
Otherwise, I want you to change the water heater panel to a 4-space "QO" panel, with their QO2DTI generator interlock. (Yes, another generator interlock; however this isn't for a generator, it allows you to power the water heater from EITHER the main panel OR the special utility meter. The feed lugs in the panel go to the water heater. One breaker backfeeds the special meter power supply. The other breaker backfeeds from a new 15A breaker in your main panel.
Normally, the main panel interlock is on "utility", and the water heater interlock is on "special meter". During a power outage, you flip the main panel interlock to "generator" and the water-heater interlock to "main panel". You should switch off all your automatically controlled loads first, so the generator isn't slammed with a bunch of load the instant you turn it on.
Transfer switches are hokey, substandard, and stupid expensive. Exploit the fact that you have a water heater subpanel, to expand that subpanel out into a generator subpanel. You'll save a ton and have top tier equipment.
I gather the water heater panel is a small one? You want to find a larger panel with enough room for 4 spaces just for a generator interlock kit. Here is one of my favorites, it is $25 and is made for a Siemens panel, and you can get a good sized Siemens main-lug panel for under $100. Other brands have similar things, don't mix panel and breaker brands. That's way cheaper than those hokey transfer switches.
One breaker feeds from your main panel, the other from your genny. Both breakers can't be on at once.
Now you simply relocate any circuits you want on generator to this subpanel. Instead of a measly six, you can have 18, 26 or even 38 circuits, depending on how big a subpanel you got. (you lose 4 breaker spaces to the interlock).
The wiring is simple and straightforward. It supports individual circuit GFCI and AFCI in both modes, since those are downline of the interlock. If you have GFCI on the generator, it is too small for your usage but you need a different interlock for that.