[jee7s]

Yes, you can use the red wire in the PWM cable to supply voltage.

You certainly need at least the ground and signal wires on both channels. This allows you to tie the grounds for each wire together at the encoder. The voltage supply should come from one of the two wires.

What you suggest will work, with one modification. Making the A channel PWM cable "fully wired" (i.e. +5, GND, and SIG all wired) works de facto. The B channel PWM cable should have the ground wire connected to the encoder ground, the signal wire connected to the B channel encoder wire, and the +5V wire terminated and insulated.

-Jeff