Yes, it's the lower thermostat.
We can tell by noting that the movable arm has a contact on only one face, which means that it's a simple switch, "single pole, single throw". Upper thermostats are more complicated, with contacts on both faces of the movable arm so they can switch power between either of two outputs: "single pole, double throw".
For those not familiar with electric water heaters, I will explain that they consist of a large tank which contains typically two high power electric resistance heating elements. Cold water feeds in at the bottom, hot water drains out at the top. Because hot water is also lighter (less dense), this flow pattern maintains whatever stratification there is within the tank. In tanks with two heating elements, the upper one is for rapidly heating just the top of the tank, to more quickly provide a small amount of hot water starting from a cold tank. When the top of the tank gets hot enough, the upper thermostat switches power to the lower heating element so that it can finish heating the rest of the tank. The lower element in turn is controlled by its own thermostat, which simply cuts power to the lower element when the bottom of the tank reaches its target temperature. Because hot water rises while cooler water sinks, the bottom of the tank will be the last to reach the target temperature, so the whole tank will be pretty evenly full of hot water when the lower element switches off.
Unfortunately, after enough cycles one or another of the thermostats may fail. It's usually the bottom one, because in normal operation that's the one that cycles most of the time.
If the bottom thermostat fails open, nothing bad happens except that the bottom of the tank stays occupied by cold water so the capacity goes way down.
But if the bottom thermostat fails closed, then something more dangerous happens. The bottom element stays on, while the water in the tank gets hotter and hotter. Because this is a common failure mode, there are defenses against it engineered into the system. The first defense is a high temperature limit switch, which essentially is another thermostat, factory set to a high temperature, not adjustable by the user, and requiring manual reset. If that fails also, then the water soon reaches boiling point and, if the system is closed by valves on both sides, the pressure starts rising quickly, potentially reaching levels that could burst the tank and produce a hugely destructive steam explosion. To keep that from happening, there is also a high pressure release valve that allows water to leave the tank before the pressure becomes threatening. So, to get one of those monstrous explosions, you need something like four simultaneous failures: normal thermostat fails closed; high limit switch does not trip; an anti-backflow valve allows pressure in the tank to rise above normal system pressure; and the high pressure release valve either fails to work or has been blocked. That combination of events is pretty rare, which is why it makes national news when a water tank rockets up through the roof of a house and ends up 200 yards down the street.
In my case, nothing very bad happened. The lower thermostat failed closed, but the high limit switch worked properly. I found out about the problem only when I started to rinse a pan with hot water from the tap and unexpectedly ran PAINFULLY HOT WATER!! over several fingers. That tipped me off to check the temperature at the faucet, which turned out to be 180°F -- about 40 degrees above scalding. Fortunately it was brief exposure, so I got no blistering and only a few hours of discomfort.
For those who are terminally curious (like me), let me provide some further information about how these thermostats work.
The key element is a bimetallic disk that is formed into a shallow bowl. As the disk heats up, differential expansion of the two metals wants to reverse the direction of curvature. At some critical temperature, the stress from expansion becomes high enough to make the disk suddenly "pop" from con
cave outward to con
vex outward. That movement of the center of the disk is mechanically coupled to the arm of the electrical contacts, which causes the contacts to open (or close) quite quickly. The exact temperature at which the "pop" occurs can be adjusted by mechanical spring forces applied to the disk. Some of that force is adjustable by the user, turning a screw that pushes a fork-shaped spring against the disk.
This picture shows the back side of the thermostat, disassembled. The bimetallic disk is mostly hidden inside a loose metal enclosure, on the left. In use, that metal enclosure is pressed tightly against the hot water tank, so the bimetallic disk is the same temperature as the tank. On the right is the outer block of the thermostat, showing the spring fork for adjusting temperature. In the middle there's a small white pin, which extends through the body to contact the movable arm of the electrical contacts.
In this picture I've placed the movable arm in its working relationship with the bimetallic disk, except of course with the body of the thermostat and the coupling pin removed. You can see that there's an internal adjusting screw mounted on the contact arm. The end of that screw bears on the coupling pin. Adjusting the screw will apply more or less pressure to the coupling pin and thus to the bimetallic disk, so I assume that the main purpose of this screw is to allow factory calibration of the trip temperature to match those handy markings on the outside of the body.
Finally, if you'd like to see a YouTube explanation of how these thermostats work, I suggest
https://www.youtube.com/watch?v=nifLZkI7bJI .
That's the one that
I used when I simply
could not figure out how the dang thing worked, after I disassembled the bad one to study its innards.
The explanation for my difficulty became obvious after seeing the video. When I had disassembled the unit, somehow the coupling pin had escaped without my noticing it. It's amazing how much difference one little detail can make!
I hope you find this interesting. I have.
--Rik