RE: found two valves. one go's to the lower part of the water heater,it is open. the other comes out of the top of the water heater,it is closed.
open both the top valve (probably on a red color line, which is the heater hot water outlet) and the bottom valve (probably on a white line, the cold water input to the heater). Also, be sure that if you have a line Tee-ed between the hot water and cold water lines, the T'ed line being your bypass line (used for winterizing), that the valve in this short bypass line is closed all the way.
my puzzle is why is seems like you're getting hot water using the on-board pump and not when using the city water hookup, for the hot water has to come out of the top heater outlet in both cases. hmmmmm...
do think you're close to getting at all setup okay!
Bobie/Don (2-legged), Pancho & Sydney (4-legged)
'08 F150 XLT
'11 Outback 268RL
'00 Miata MX5