Just wanted to update the final resolution and document what I learned about the charging system and diagnosis process for those with YJ charging system issues.
The following applies to late model YJ, mine is a 94', there seems to have been significant changes over the years, so earlier models might be different.
Basic Operation, reference image in previous post:
1. Alternator needs to be regulated to not over charge. The alternator turns off and on frequently to regulate charge. Many alternators have built in voltage regulator, in the YJ voltage regulation is controlled by the PCM.
2. The two field terminals on the back of the alternator are used to regulate the alternator. One terminal is connected to system voltage. The other terminal is ground switched by the PCM. This means when the PCM decides to enable the alternator it grounds this 2nd terminal completing the circuit and energizing the field coil inside the alternator that engages the alternator. The PCM uses PWM to control the field coil.
3. PWM allows the PCM to control "how much charge" the alternator produces. To run the alternator at 50% the PCM runs a PWM at 50% duty cycle, this means the k20 terminal on the alternator will read around 6v. When the PCM wants to run the alternator 100% duty cycle the voltage will be 0v, when the alternator isn't running the voltage will be 12v.
With the basic operation knowledge here are the steps I used to diagnose the system so I don't have to throw parts at it.
1. With a multimeter, measure voltage at the battery posts, with car running should be above 14. If less then 14 you have a charge issue
2. Move negative probe to engine block, should remain the same. If not you have a ground issue.
3. With a multimeter measure voltage at the alternator posts, with car running should match measurment at battery. If not you have a high resistence in the ground or positive wires.
a. Measure voltage at the postive battery and postive alternator. Should be less .1 volt, if not you have high resistence in the postive cabless.
b. Measure voltage at the negative battery and negative alternator. Should be less .1 volt, if not you have ground issues.
3. To eleminate the PCM as an issue, using a LED test light, confirm the PCM is grounding the K20 terminal. Connect the test light to battery postive and the light probe on K20 terminal of the alternator. If the PCM is full grounded the light should be bright, if the PCM is regulating voltage should glow less bright. If the light does not glow, then the PCM or you have a wiring issue between the alternator and PCM.
4. If you've gotten here and everything checks out, it's likely you alternator.
Even through my alternator bench tested fine, it was bad. I don't know if with a field coil issue the bench test passes, but even through the PCM was fully grounding the K20 terminal the alterantor would not engage.
Hope this help the next Jeep'er!