Wiring in a water heater with 3-wire 240v are smoldering

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GE 40M06AAG - (40 gal)
upper 4500w@240v 3380w@208v
lower 4500w@240v 3380w@208v
The wiring looks like #10, bigger than #12 for sure, goes to a dual 20 amp breaker.


In the summers i live in a small house in Montana and replaced the water heater last summer. This summer the installation wiring & caps got hot enough to melt plastic so i know i did something wrong. The wiring is only 3 conductor, 2 black and one white (no ground). Apparently i duplicated the original wiring by connecting the black wires to the water heater's red and black with caps, which seems reasonable. But the white was grounded on water heater housing which seems weird, as does not having a ground wire. The User's manual was no help at all.


The person who did the original wiring was probably as much an amateur as me. It was his hunting cabin that he improved to get his wife to live here. i am guessing it was wired in the 1970's, maybe earlier. It surprised me there was no ground wire.

0. Are the connections supposed to smolder?


1. Should this wiring strategy be OK?
If yes, how do improve the connections so they do not heat?
It would seem strange to use solder on house wiring.


2. Should i open the circuit breaker panel to see if the white is running to ground or neutral?
(i cannot imagine how to tell with a VOM.)
Which should it be and should i correct it?


3. I worry about the water heater not having a proper ground. Should i pound a grounding rod into the dirt directly below the floor and ground it that way?
Or fish a new ground wire thru the walls to the circuit box?


4. Should i hire a professional electrician or buy fire insurance?


Rimini, MT
 
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