The prices they charge you are instead set by public utility commissions, state regulatory agencies. They start by deciding how much the company should be allowed to profit (the “revenue requirement”), and they work backwards from there to set the company’s rates. To calculate that revenue requirement, they look at the company’s expenses. Specifically, they look at how much the company spends on building new infrastructure.
This puts the company in a bizarre position. The way for them to make money isn’t to sell you more electricity (you’ll notice very few ad campaigns from your local utility provider suggesting you turn your A/C on full blast). Instead, they should seek a higher revenue requirement. They do this by appearing in front of commissions in meetings called rate cases and pleading by pointing out all the new infrastructure they built. Maybe the new infrastructure won’t actually help them make electricity in the best way. Maybe the new stuff distracted them from fixing the old stuff, endangering everyone. But they built some new infrastructure, dammit, and it cost them, so they need to charge more.
“I don’t know!”
Cracked elder statesman Cody Johnston talked about this in detail in a recent video. The rest of the video is about the problems of utility companies being private businesses, but you’ll notice that this specific “to each according to their need” situation sounds like a horror tale out of the Soviet Union. Picture the hungry Mikhailov family kidnapping a bunch of kids off a snowy street. “Claiming a larger family is the only way to raise our flour ration!” says Boris, as he marches them to the Council.