I have Iron Engine pick up the Impact Beam so how does it work with his Water Cannons?

Impact Beam
Water Cannons
Do I have to choose to use either Water Cannon special or Force Blast? Also, if I hit does the Water Cannons now increase by 1 after I calculate half of Iron Engine's attack roll and is penetrating?

Nope, the action from the beam to use force blast and the knock back effect are two separate effects.

> It can use Force Blast.
> Knock back damage dealt by this character is increased by 1 and is penetrating.

So you knock the target back with his water cannons into a wall, it takes 2 penetrating damage and drops into a pool of water terrain.

If the effects weren't separate it'd say 'Knock back damage dealt by this character when using Force Blast...' or something to that effect.

The Impact Beam effects KB Damage DEALT, not normal damage of a ranged attack which seems to be what you are asking.

Those portions of the powers you listed seem to be compatible with each other.

Thanks for the answers!