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I agree something does not seem right and it's good that both electric and propane are good things to have for the best in versatility. Using only electric means that in winter you can save the propane for the furnace. Using only Propane means you can save the electric for the A/Cs to cool the rig. Using both means not as much electric OR propane are needed because they both heat quicker than using only either.
Now, there is an adjustment but I've read these are done at the factory and I don't believe this can be user adjusted but this might not be the issue. There is also a thermostat for the unit and this might not be working right and the propane heater may not be shutting down properly when the WH temp is correct so the propane heater runs and runs and runs. The paint getting burned off is a good indicator that things are getting too hot and staying too hot. This can be dangerous as well. Have you noticed water "leakage" at the WH which might be coming from the pressure relief valve and indicating the WH is running too hot?
You might want to have this checked out.
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