  The merchant-regulatory mechanism represents a promising tool that combines
the benefits of merchant investment and regulated investment, thereby providing
efficient incentives for merchant Transmission Companies (Transcos) subject to
regulatory compliance. However, one of the drawbacks of the H-R-G-V
merchant-regulated mechanism is that it allows the Transco to capture the
entire surplus increase resulting from investment, without any economic
benefits for consumers and generators. To address this issue, we propose an
incentive tuning parameter, which is incorporated into the calculation of the
incentive fee for the Transco. Accordingly, the regulatory framework can
effectively manage the Transco's profit and allow market participants to access
economic benefits, thus ensuring a fair distribution of economic advantages
among the stakeholders, while the impact on overall social welfare remains
relatively modest.
