Hi and welcome to FixYa, I am Kelly
First off I am just trying to help you and not participating on the FixYa site for the money. I have been working on small engines and generators since the late 1960's.
This is usually caused by the speed limiter assy. (Not a cheap part)
SPEED LIMITER ASSY 7WL
Item 22 this link:
The feedback wiper in the speed limiter is either dirty or worn. When you re-position the throttle arm the feedback wiper is making good contact again so it works normally. It appears that the feedback wiper in the speed control is not making good contact at full RPM so it does not drive the throttle linkage to idle.
If your careful dependng on the design of your speed control you just might be able to take the cover off and clean it up so the wiper makes contact. Wht ever you do DO NOT lift the wiper arm up. You will bend it and never be able to get it to function again. Just clean it. You can use sand paper but... be real careful.
If your speed control is 100 % electronic with only a small DC motor actuator you may have to see if you can clean the brushes and armature slip rings of the internal DC motor.
I have brought several speed controls back to life but it really is a major game of chance anytime you open one up. Just know that your stuck with a very expensive replacement cost for a speed control unit if you screw it up. ----
----It is not a bad thing to keep using your generator with a defective / improperly functioning speed control. As you know is just will not throttle down.
The part number listed above is for the original part number and has been superceded by another part number:
The ($60.00) service manual for this generator is available from Yamaha by PN: LIT-19616-CM-20
Anywhere else the manual is $80.00!
Thanks for choosing FixYa,