Tiny,
you don't need to read the battery voltage when you are trying to diagnose this, you need to read the GEN or Armature voltage. With the cutout open and the field solidly grounded, your Armature/Generator voltage would go to around 20 Volts. When the cutout closes, the voltage cannot possibly go that high because of the battery and the regulator.
I would suggest disconnecting and taping the GEN and FIELD wires at the regulator. Then ground the field at the generator, start it up and measure the voltage at the armature. If that is good, you have issues with either the regulator or wiring. Running a ground wire between your generator casing and the regulator housing may solve your problems.
