Tim:—This is a very common complaint, and generally is the result of the anode ( a magnesium or aluminum rod that is installed inside the tank to prevent premature failure due to leaks). Under some circumstances, this anode can produce Hydrogen Gas which unites with any traces of Sufur in the water to form Hydrogen Sulphide Gas(smells like rotten eggs) or there is a microorganism that can live inside the water heater (harmless, but produce the same effect.) Best method to dealk with the problem is to turn the power or gas off to the heater, and let the hot water run full bore into the bathtub until the water stars to run clear and without any odor. Removal of the anode will void your warranty on the tank, and accelerate tank failure.Lots of luck…Bud..