System and method for controlling a water heater

A system for controlling a water heating system senses the temperature of new (unheated) water and uses any drop in that temperature as an early, quantitative measure of the demand for hot water within the system. The heater itself is turned "on" and "off" with respect to a control set point temperature (TC) which increases with decreasing inlet water temperature. Thus, the control set point is increased above a baseline by an amount related to the amount of unheated water drawn into the heater to replenish the heated water being used. In a preferred embodiment, a calculated demand value proportional to the drop in inlet water temperature (TI) is summed over time to reflect the time during which a given demand condition continues. When the heater is ultimately turned "off", signifying that the hot water supply temperature (TS) is substantially higher than the control temperature (TC), the control temperature is reset to its baseline value.