Valving is on backside of WH tank
Cold water in (bottom)
Bypass (connects cold and hot lines)
No Hot out valve IF check valve is used

Or 3 valves could have been used
Cold (bottom)
Hot (top)
Bypass (middle)

Water should heat to 140*F (normal temp t-stat)
If normal t-stat fails to OPEN then ECO (high temp t-stat) will open at 180*F .....then lock out any reheating and 'Fault Light' will come on (RED Light on On/OFF Panel)
Hot /warm/cold temp fluctuations is a result of cold mixing with hot
Failed t-stat will just give you really HOT water until used up but not hot/cold/hot