If a homeowner notices orange water coming from a hot water faucet, this may indicate the water heater has developed a crack in the liner, and the surrounding stainless steel is rusting. Other signs include an unusual taste or smell.
The liner is one of the parts of a water heater which cannot be repaired, and the unit will have to be replaced. A crack in the liner is often caused by high heat or pressure, both of which can damage the liner. Since the stainless steel sleeve rusts fairly quickly, the water heater should be replaced before the rust corrodes the sleeve entirely and the water heater starts leaking on the ground.