I just installed a new hot water heater and the two nipples on top of the unit have a slow leak at the base coming up from the unit. I used teflon tape and feel like they are tight enough. If I used too much tape could that be the problem? Is it possible to over tighten the nipple into the heater? Any suggestions on what to do would be greatly appreciated.
You should use pipe dope as well as teflon if you didn't. Two or three wraps of teflon is plenty. Over tightening them wouldn't cause a leak, under tightening would. What are you using to tighten them? You probably just need to tighten up a but more on them.
You usually just need to use about 3 flat wraps of teflon tape on pipe threads, wrapped clockwise only as the threaded end faces you. Add pipe dope too, if you choose. I never do, as the tape works just fine.
I hoped that you're using di-electric nipples that help prevent electrical corrosion between two dissimilar metals (cast iron and brass, for instance), and not plain galvanized nipples.
The latter will corrode quickly and put rust into your hot water.