A method of operating a water heater receiving electrical power from an electrical grid. The method includes providing a water heater in a locked state. A digital key module may be communicatively coupled (for example, via wired or wireless communication) to the water heater and used to unlock the water heater placing the water heater into an unlocked state. Such unlocking of the water heater must only be done for such water heaters that are enrolled in a utility demand response program.