The type of alternator on the 77 KZ650's uses the field to regulate the output of the alternator. This type is more efficient and is designed to handle a wider range of electrical demand. Because of this, it can be made to give more output than the permanent magnet type alternator with no exta losses when electrical demand is low. (That's also why this type is used on cars.)
When the electrical demand is lower, the field coil reduces the magnetism. Or, more precisely, when the crank is turning faster, there is more horsepower going to the alternator so it needs to have less magnetism or it would produce too much electricity. Thus the field must be reduced.
The only time the field coil should get full magnetism is near idle when the bike's lights are on. If it had full field power on all the time, the field coil may eventually burn up, or at best it will waste a bunch of crank horsepower.
In the permanent magnet type alternator, the field is fixed, so the only way to regulate the power output is to short the windings to ground and burn off the excess power (all inside the regulator). This is ok if you make the alternator just powerful enough to power the bike with maybe a little extra margin of power. If you make the alternator too powerful, you will waste too much crankshaft horsepower and/or burn out the regulator more often. So the permanent magnet type alternators aren't made to handle as much extra load as you can make an excited field alternator handle.
Theoretically, on the 77 model, you could just put full power to the field coil and burn off the excess that the alternator puts out by using the permanent magnet type regulator. However, you will likely burn out the field coil because it is meant to only handle full power at idle, and you will likely burn out the regulator since that alternator should be able to put out a little more power than the typical permanent magnet alternator.
The main problem with the 77 system, besides the extra complexity (with more things that can fail), is the mechanical regulator. It's not the most reliable type of regulator due to arcing in its contacts. Also, the design is not as efficient as it could be since it only uses battery power to energize the field. On a better design, the rectifier would have a special output dedicated to powering the field coil so that the field coil won't use battery power to energize, but will instead use power directly from the alternator itself to energize. This makes it more effiecient at low RPMs when the field coil may in fact rob battery power to energize, but the alternator may not be getting enough crank power to make enough voltage. This is especially true in case you shut the motor off, but leave the ignition key on. With the extra tap on the recifier, in both cases, the field coil would only use a small trickle from the battery, but on the KZ650 (and 400's and some 750 twins), the field is burning away nearly 3 or 4 amps.
