This house was built in 1969 and for whatever reason, there is no ground
going anywhere. There was one grounded outlet in the basement, grounded to
the city water pipe. I have followed suit and grounded a few outlets
upstairs by running separate ground wire to this same pipe. This is
probably not strictly code, but I think it's safe.

As for the garage, I can see no definite ground out there at all. Only a
very large three conductor cable has been routed out there. I did typo, the
red and black go to the fuses and the white just goes to a lug from which
other connections are made. The white is "grounded" to the box itself, but
the box is completely isolated (mounted on wood, no conductive connections
other than the three wires) so I think this is pointless.

My plan of attack then is to wire the black and red to the spades
(horizontal looking connections) of the outlet and the white to the ground.
Then at the box, ground the white wire somehow. I will check to see if the
conduit from the floor of the garage is continuous to the ground in the
house, but now that I think about it, I really doubt this is the case. The
cable looks like a kind that would just be run through bare ground (looks
like the kind I'd buy at Home Depot, only much bigger).

I'll try to answer Tom's questions about the two boxes in the garage. The
larger box is where the 3-conductor cable enters from the conduit in the
floor. Inside, the cable splits apart so that the white goes to a lug on
the side of the box and the red and black go to two large fuses (cylindrical
shaped fuses). The large lever switch is external to the box and disables
the fuses when in the off position. The smaller box works from the white
wire connection at the lug and from the "input" side of the two fuses,
unaffected by the fuses or the switch (it's as if the larger box doesn't
exist to the smaller box, except to reduce the wire guage to a manageable
size). All you really see when you open the larger box is the dual fuse
arrangement right in the center. It looks to me like it's made to make 220.

Here is how I suggest you proceed at your garage providing that there
are no metallic pathways such as water, sewer, fuel gas, or other
piping; and no other wiring such as video, intercom, alarm, or telephone
between the two buildings. Wiring that comes to each building
separately from the utility owned lines does not count. This also
assumes that the interior wiring in the garage is cable rather than
conduit.

As long as the two cartridge fuses in the large box are larger than
thirty amps I suggest you use the enclosed switch as the code required
building disconnecting means. Replace the single terminal lug in the
enclosed switch that the white wire form the house connects to with a
multi terminal lug. The new lug should have four terminals and be
connected directly to the enclosure of the switch by its mounting
screws. Use the new lug to terminate all of the white and green/bare
conductors that start or end in that switch. Install two driven ground
rods at least six feet apart. The two rods are the required building
grounding electrode system. Make sure you do not drive them through your
feeder cable or any other underground utility. Call the local miss
utility service at least one week in advance so they can mark the
location of any utilities for you. In most cases they will not mark the
location of the feeders or other utilities you own. From the farthest
rod's acorn clamp run a bare solid number six copper conductor, that
will serve as your Grounding Electrode Conductor (EGC), through the
acorn clamp on the nearest rod to the enclosed switch and terminate it
on the multi terminal lug in the switch enclosure. The EGC will be run
in a trench that you dig between the two rods and the wall outside the
enclosed switch. The trench should be deep enough to make later
disturbance to the EGC unlikely.

Install a main lug only (MLO) panel of the 100 ampere or so variety and
supply it from the load terminals of the enclosed switch. The panel you
buy should have six to twelve slots in it for single pole breakers
depending on what you anticipate your future electrical needs to be in
the garage. Remove the wires that go from the line terminals of the
switch to the other fuse panel. Demolish that panel and install your
new MLO panel in it's place. Remove the green bonding screw or metal
strap that came with the new panel. The white wire from the enclosed
switch will terminate on the neutral buss of the new panel. Install an
Equipment Grounding Conductor (EGC) buss bar in the new panel. Run a
green insulated or bare EGC from the enclosed switch to the new panel
and terminate it on the EGC buss bar. Since the supply feeder to the
garage is fused at forty amperes you can use a number ten wire as the
EGC. Rewire the existing circuits to your new panel. If the existing
circuits have EGCs than terminate them on the EGC buss bar.

Install a thirty ampere double pole breaker in your new panel. Run a 10
gauge, two conductor plus ground cable to an outlet box near the
location of the new heater. Terminate the cables two insulated
conductors that are not green to the dark or brass colored terminals of
the receptacle. Terminate the green or bare wire to the hexagonal
and/or green screw of the receptacle.