I fully agree with your comment that prices should reflect full energy costs (including externalities) but not necessarily more.
I do disagree that deregulation is the best way to achieve this. Externalities, by defintion, can only be internalised through regulation. Safety margins in the network, spare capacity, spinning reserves, etc... need to be defined and regulated and enforced.
Private electricity producers also have a structural preference for power sources with lower investment costs, as they are the easiest to build profitably, as variable costs are easier to pass through in market prices, and interest costs are higher for the private sector. Thus coal and gas fired plants are encouraged by private ownership, unless stringently regulated for their carbon emissions.
There are so many side effects of each aspect of regulation that a public, unified system increasingly appears to me to be the wisest solution and, as France shows, the cheapest as well. In the long run, we're all dead. John Maynard Keynes
Deregulation shouldn't mean just throw the energy grid to the wind and let the market sort it out. But it should give wasters of energy a way to save energy and sell it to more deserving users (if they own it), and it should allow consumers (industrial or domestic) to really choose provider to prevent price gouging.
Most externalities can be handled by taxes and other fees, pollution taxes, paying for loss of capital for non-renewable energy sources, or rent for renewable sources (hydroelectric plants takes away a waterfall, solar and wind plants occupy non-neglible parts of the landscape). A hefty carbon tax, which is likely, will prevent inefficient coal power plants (it isn't a given that coal power plants are polluting, the current ones are, but it is at least in theory possible to have clean coal power, it is just that until now there has been no reason to look for it).
Some parts are hard to handle well, maintaining a power grid that can handle the strain, but not being excessively intrusive or expensive, may be hard to do for any entity, public or private. The profitability of a solar plant is fairly easy to calculate, you have an initial investment, you pay rent for the land, and the variability is what the energy prices will be in its (relatively short) lifetime. A nuclear plant is harder to calculate, it has a very long life span from construction to decommission, there is the small but real risk of a disaster, the cost of fuel is unpredictable, and desposing on the used fuel is another unknown.
