Ok, I turned on the electric for the water heater and allowed it to get really warm. I felt the tank on the inside and it was hot. I then went to the tub and turned on the hot water side only and the water got warm for a few seconds then REALLY HOT for about 3 seconds then went to warm and stayed that way. I then decided to give it a rest and turned off the water and and drained the heater by opening the small valve to the bottom left, I then reached up and felt the over flow valve and it was HOT and the water that came out of it was HOT. I do not understand how the water can be Hot in the overflow vavle and not the little valve to the bottom left. ANy help PLEASE.
I would start with the bypass valve - sounds like the likely culprit. Do you have an outside shower? You could also have this problem if the outside shower valves are open and the cutoff at the shower head is closed.