High penetrations of distributed energy resources (DERs) such as renewables, storage, smart loads, and electric vehicles are driving the transformation of traditional distribution networks into transactive energy distribution systems (TEDS). TEDS depart from conventional distribution system constructs to 1) enable a local distribution operator (LDO) to maximize social welfare, 2) enable peer-to-peer (P2P) and peer-to-LDO (P2LDO) energy transactions as part of distribution market operations, 3) extract maximum participation and benefits from DERs, 4) usher in competition in the distribution sector to supply electricity via DERs, and 5) hold the potential for a lower asset cost solution, greater customer choice, and higher reliability. The conventional distribution system planning is inadequate for this purpose, as it only considers wires and transformers, depends solely on transmission system for energy, does not foster competition for energy supply and does not maximize social welfare. The proposed incremental capacity auction (ICA) considers: 1) bids for power capacity from all energy sources (DERs and transmission), 2) bids for network asset upgrades from equipment vendors, and 3) bids from new loads. The proposed ICA mechanism maximizes social welfare by procuring the best set of assets for energy and network elements to supply new loads that clear the market.