You could use a simpler method than cte: subquery. This basic technique exists from sql2000 (and probably even earlier)

and is worth to be learned:

SELECT *

FROM

(

SELECT A.COMPKEY, B.HYDR_ID, B.DATE, B.hydr_gpm, B.gpm_20, B.gpm_10, B.gpm_0, B.staff_id, B.shift,

B.static, B.residual, B.pitot, B.pitot2, coeff, A.Shape, C.not_in_srv, A.FLOWTEST,

Rank() over (Partition BY B.HYDR_ID order by B.DTTM DESC) AS RANK

FROM GISOWNER.WATHYDRANT A

LEFT JOIN S_4.FH.dbo.hyd_actv B

ON A.COMPKEY = B.HYDR_ID

LEFT JOIN S_4.FH.dbo.hyd_main C

ON A.COMPKEY = C.HYDR_ID

WHERE A.FIREZONE IN ('FZ1', 'FZ2', 'FZ3', 'FZ4', 'FZ5', 'FZ6', 'FZ7') AND (B.FLOWTEST = '1' OR C.not_in_srv = '1')

) FLOWTEST

WHERE RANK = 1

CTE is required only if you want to use a subquery more than once, or in a recursion.