I have rheem gas water heater and I am getting water out the PRV. I have replaced the valve and still getting the leak. On the thermastat dial is an arrow then a A B C. I have mine set on the arrow and im getting 140 degrees from faucet. The manual says it should be 120 on the arrow setting. Could I have bad temp gauge or expansion tank or....?
The water heater is 2 yrs old.

If you are getting 140 degree water from the faucet, then you need to look at the pressure first. Yes, it could be a combination of issues causing a temperature spike in the tank, but it is unlikely since the water is 140 at the faucet. Use a pressure gauge and attach it to a hose faucet after your pressure reducing valve and check the pressure. Let a couple gallons of water out first to be sure it hasn't climbed while it is sitting there. If the pressure is high, your prv is bad. If the pressure is at the prv's set point, then the expansion tank is bad. If the Prv is bad, it can still be an expansion tank as well.

i have tested pressure at hose bib and HWH spicket and both are 70

what pressure do you read on the expansion tank?

With the water to the house off and the pressure drained at a faucet, check the pressure in the expansion tank with a air pressure gauge. If you press on the schrader valve and water squirts out, the tank is bad; if not, the pressure in the tank should be at ~75 psi to work properly. A bicycle air pump can be used to fill up the tank.