|Note the burned and corroded wires and char marks.|
Definitely not a good thing on a boat. From what I can tell, apparently whoever installed the water heater didn't find much of a need to secure the power cable. The result is the 120v wires rubbed against the metal casing of the water heater until the wire sheath was compromised. Then the combination of corrosion and the chafing likely caused heating and arcing of the wires which resulted in the extensive char marks on the inside of the electrical cover and casing around the electrical connections. Basically, the start of an electrical fire. It is fortunate that the wires played like a fuse and cut the power before a full on fire developed.
I cut away the burned and corroded wire, connected the wires back together according to the wiring diagram using marine grade heat-shrink crimp connectors. To help prevent further issues of this sort, I also used some electrical tape as added anti-chafe protection, added a rubber grommet to the bare metal hole the power wire runs through, and secured the wire so it should not move around and chafe in the future. I tested the heater and it is once again working just fine. After a couple heating cycles, I went back and checked the connections just to verify that the heater wasn't pulling too much current and melting the wires and I found no damage.
So, once again, I have hot water on board that works with shore power. And in a complete surprise, I didn't even find another problem to fix while I was working on the heater...so maybe I can start making a dent in "the list".