Investigates the changes that can be made in water heating technology to reduce the energy required to heat a given amount of water to some acceptable temperature, i.e., to reduce heat losses from the system. Each measure is examined in an economic cost-benefit framework in which costs are the incremental dollars that must be invested by the consumer to institute the measure, and benefits are the dollars saved in operating (fuel) expenses over the lifetime of the water heater. Government policies are suggested which would encourage implementation of these measures. The study concludes that thicker tank insulation is perhaps the most effective means of reducing heat losses and overall energy consumption of conventional water heaters. Policies that encourage consumers to install economically optimum equipment may result in end use water heating energy reductions of 26 to 68 percent.