Austin...I still have not received a reply from the Manufacturer and while it is obvious that the installation is not up to code at this time, I don't see anything in the photo's that would render it unsafe or demand an immediate attention, There fore I am going to solicit a bit more information from you before I advise you how to correct the issues. This will permit you to do everything at one time rather than continually revisit this problem.
To answer your questions...
Water heaters are now required to be manufactured witha minimum of R-12 insulation, therefore the code does not recommend the addition of insulating blankets and no longer has a minimum wall clearance requirement. In fact, in some geologically active regions or in Hurricane regions you are required to strap the tank to the wall to prevent it falling over.
The electrical service is definitely not up to code, but I am going to ask Hayzee or Kactuskid to review that area and give us current National Electrical Code Specs. I can say that it is obvious that there is no "line of site" from this location to the service breaker, therefore you are required to have either a lockable electrical panel or a service disconnect near the water heater. The electrical service cable should be properly secured to the wall and fed to the disconnect box. (In my jurisdiction we are required to use either metal shielded cable or Seal tight flexible conduit from the disconnect to the water heater, and the flex may not exceed 6ft in lenght.)
In the photo there appears to be an angle valve on the cold water supply line after the shutoff at the 90 deg downturn. That does not appear to be a full bore valve although it is difficult to see in the photo.
Looking at the top of the tank, the T&P valve is installed into a TEE with the hot water line connected to the side port of the TEE. Whlie a T&P valve may be installed in that manner you may not use the conventional T&P valve, it requires the use of a special LONG PROBE T&P valve. (The code requires the sensing probe to be in the upper 6" of the pressure vessel.)
In the second photo there appears to be an unused inlet port to the right of the T&P valve. I am guessing there is another port on the left of the T&P at the same distance. Is that correct, and if so, how are those ports plugged at this time? (You may see the letters C & H stamped into the top housing near those ports)
I am attaching a diagram of the component layout for an electric water heater. Note the Dip tube on the top cold water supply port. You will see that it goes to the same general area as the side tap where your line is presently.
The T&P valve, Hot water outlet, and sacrificial anode ports are all the same and component placement is interchangable.
Once we have all the information I will prepare you a diagram and detailed instructions so you will be able to address everything at once.
