An electric hot water heater has two thermostats controlling two separate heating elements — one in the upper half of the tank, one in the lower half. Usually, when the upper thermostat goes bad, you will have no hot water at all, while a bad lower thermostat makes itself known when there is only a small amount of hot water before the tap water goes cold. This is not a hard and fast rule, though, and it's best to test the thermostats to determine which one needs replacing.
A common electrician's tool known as a multimeter is used to test the thermostats. Once you have determined the faulty thermostat, you can replace it and have your hot water heater working again.
Turn the water heater circuit breaker off inside the main service panel.
Remove the upper and the lower access panels with a Phillips screwdriver. The access panels are on the side of the electric hot water heater and usually have an electrical warning label attached.
Pull away any insulation that is covering the thermostat and the heating element. Be careful not to pull any wires while moving the insulation.
Use a flat-head screwdriver to turn the temperature setting to the highest setting on the upper thermostat. Set the scale on a multimeter to the RX1 setting.
Place one probe on the left screw terminal with the white wire and one probe on the terminal directly above the white wire. The reading on the multimeter should show zero. Any other reading on the multimeter indicates a faulty thermostat.
Set the upper thermostat to the lowest setting using the flat-head screwdriver. You should hear a click from the thermostat during this process. Place one probe on the terminal above the white wire and the other probe on the terminal that the black wire connects to. Again, the reading on the multimeter should be zero.
Leave the upper thermostat in the lowest setting and test the lower thermostat. Use the screwdriver to set the lower thermostat to the highest setting. Touch one probe of the multimeter to each terminal on the lower thermostat. The lower thermostat has only two terminals. The reading on the multimeter should be zero.
Replace the faulty thermostat, and place the insulation back over the thermostats and the heating elements. Replace the access panel covers securing the covers with the retaining screws. Turn the circuit breaker back on to activate the electric water heater.