A system and method for operating an electric heater to determine heater functionality is based on actual heater power consumption relative to expected heater power consumption during operating conditions where electrical power consumption by other system components can be accurately estimated. One or more components, including a second heating source, may be controlled based on the heater functionality. The system may include a hybrid vehicle having an engine, an electric heater and heater core, a valve positioned to route coolant through the engine and/or the electric heater, and a controller configured to store a diagnostic code and/or start the engine when the electric heater is commanded on and when the actual energy consumption of the electric heater is below a corresponding threshold.