You'll need to check with who built the harness since it's an aftermarket kit. This is either feeding 12v power to the field coil and voltage regulator, or it's taking power from the field coil and sending it somewhere, most likely the ignition coil. If it wasn't plugged in, though, it's not what made the wire smoke.
Anyway l could eliminate that,run the blue voltage regulator wire to alternator? The the blue wire just be a single wire instead of a double blue wire.