After some delays due to weather, work and other things I finally got back to this. I did some of the cleanup of the wiring for the outlet circuit (put the wire coming out of the subpanel in conduit, rerouted it and eliminated an unnecessary outlet).
I then wired in a GFCI outlet as the first one in the circuit (as previously suggested). To verify it was wired correctly I plugged in my tester and got an “open hot” reading. I tested with the meter and the reading between the ground and hot side is still reading 121 volts. Since the outlet was an old one I put on a new one (not GFCI) – the meter was still reading 121 volts between the ground and hot side. Thinking it could be something on one of the outlets down line I took the wiring down line off – still the same.
So I still have a problem, but different than before. Previously the outlet in that box read first light red no others lit (no idea what that means) – now it reads as “open hot”. The voltage readings are the same as before – 121 volts between the ground and hot side of the outlet. So, the way I see it now is the problem has to be somewhere in the subpanel in the well house and/or the main panel. I wired the line from the subpanel to the outlet the same as it was before; white to white, black to black, and ground to the ground bar (close up of ground bar attached).
The question is what are the possible causes for the ground getting 121 volts?
One thing I noticed when stripping back insulation was the clear layer of insulation over the colored (black or white) has become deteriorated (like it had been in the AZ sun) and detached from the wire. My questions on that are:
1) Is this “normal” (the wire is likely from the late 90s and none of the wire has been exposed to sun?
2) Is the colored (black or white) insulation sufficient to insulate the wires?
Your help is appreciated.