Combine water and butter in a large Dutch oven; cook over medium heat until butter melts. Add potato, apple, and onion; bring to a boil. Reduce heat; cover and simmer 15 minutes or until vegetables are tender.
Add sauerkraut, sugar, caraway seeds, and pepper; stir well. Bring to a boil. Reduce heat; cook, uncovered, over low heat 15 minutes or until liquid is absorbed. Stir in frankfurters.
Cook over low heat 5 minutes or until frankfurters are thoroughly heated, stirring frequently. Spoon into a serving dish and serve immediately.