the loose connection would decrease flow there till it made contact again & then the reg would bump up the voltage to get the depleted (from intermittent charging) battery back to normal full charged with super high (full fielded) voltage coming out of the bulkhead & it goes to the #1 splice & t's off so each branch is getting less & that is likely why it melted from the bulkhead to the #1 splice (the T) but generally it melts the insulation to some extent everywhere as it can be 16-17 volts & that is just "pressure potential" and some circuits draw less amps (flow) so less damage/melting. EDIT the full fielded voltage is coming out the alt large "batt" stud & goes in/thru the bulkhead to the welded splice on the underdash area & to the ign sw (& other circuits) then back out the bulkhead to the blue wire circuit (ign1 run) circuit in question when it is running