fatman,
Yes. That's correct. The regulator works by turning a ground on and off rapidly to average the current through the rotor in response to the voltage that it "sees" on the brown wire. In order for current to flow, you have to have battery on the other brush.
The stock regulator does the same thing by providing +12 on and off rapidly, so the other brush is grounded in a stock system.
When I had my airplane, I had an agreement with the A&P that I would fix the electrical problems and he would sign off on it if I told him what I did to fix the problem. It's not you, it's just that A&P's are not taught enough about things electrical.
The whole thing starts with the design team of engineers for cars, airplanes and motor cycles. They are predominantly mechanical engineers, and they ignore the electrical parts as a nuisance until they finish the design and realize that it wont run without some wires attached. So, the electrical part is tacked on to the finished design, and then the electrical engineers are sent back down to their basement offices.
This whole philosophy trickles down to the training of mechanics and A&P's. Electricity isn't really difficult, it's just different in that you cannot see what is going on and you have to rely on theory more than you do with the mechanical parts.