The first thing you want to check is the height of the new water heater to ensure you have enough clearance - don't assume, measure. After that it's a matter of making the water connections, which may require some plumbing skills - cutting and fitting pipe, soldering, etc. You should also check the electrical requirements to ensure the existing circuit is large enough and you'll also need to know how to make the electrical connections to the new heater. Other options would include a second water heater, storage tank with recirculating pump, or an appropriately sized tankless heater. This post was edited by mike_kaiser on Tue, Jan 1, 13 at 19:54

Thermal expansion Commonly solved by installing a potable water expansion tank on the cold water line near the water heater. This is common, when homes have backflow preventors or check valves on the incoming water line. One thing for sure, you donÂt have any leaks on your faucets or toilets. The PRV on your water heater is a safety valve, after functioning as it has and should may fail to hold because it can wear out, needing replacement. Remember this is the result of the expansion, not a heater or valve problem. Install a tank and you will solve the issue, preserve your tank and other fixtures and get built in water hammer arrestor to boot.

Is it possible that it's still turned off at the water heater. There is a valve on the cold water side right above the water heater.

From what you write, you may know this already, but an electric WH is wired so that the top thermostat is the one that takes the lead, heating the top half of the tank for a quick recovery. Any time the top water is below its setpoint, the top element is on and the bottom one is not. The top thermostat is actually a double-throw switch. Once the top thermostat is satisfied, you have half a tank of hot water. The top thermo reroutes the incoming power from the top element to the bottom thermostat. The bottom thermostat then hammers the bottom element until it's satisfied, then it shuts off. Now you have a full tank of hot water. This allows you to have 2 high power (4500 Watt or whatever) elements but a WH that never uses more than 4500 Watts. It sounds like your tests seemed to show the elements and thermostats working right. Now you need to actually monitor what the upper and lower elements are doing while the tank is in operation. This requires working with hazardous voltages, so while I don't want to offend you by suggesting anything, I have to say right here that if you don't know electricity and electrical safety by heart, you should turn this over to a qualified service technician. That warning out of the way, this is pretty easy to test with the access panels off,; insulation peeled back; and neon test light, DMM, or Wiggy at the ready. For something like this I'd probably connect a test light to each element with insulated clip leads, so I could watch the transition from top to bottom element happen (or not happen). My guess: you'll find that the top thermostat's contact that closes on temp rise, the one which transfers power to the bottom element, is not closing properly or consistently., Another possibility is that although the bottom element measures the right resistance for 4500-5000 Watt WH, and the top thermo is working right, the wiring between top and bottom elements has failed. Probably close to 50 years ago, I rewired a WH on which that had happened. Maybe the wire that failed had been nicked when it was pulled in at the factory or something, but for whatever reason, it had burned in two about 1/3 of the way from top port to bottom port. Let us know how you make out with this.