The fine follows a series of dangerous incidents, including explosions at homes in Portland and South Portland, a gas leak in Cape Elizabeth and an over-pressurization incident that caused fires in Saco.
It was assessed the same day the commission approved the sale of the company's Maine operations to Hampton, N.H.
-based Unitil Corp., which serves 115,000 customers in New Hampshire and Massachusetts.
"Northern Utilities' problems were systemwide and compromised public safety," Sharon M. Reishus, chairwoman of the commission, said in a written statement. "That was not acceptable. The company's shareholders must now pay for major safety investments and management must improve its practices."
The fine is part of a settlement agreement negotiated by the PUC and Northern Utilities that does not include an admission of fault by the utility.
The commission ordered Northern Utilities to pay $1.2 million earmarked for infrastructure and public safety improvements and an $800,000 administrative penalty to the PUC. The commission will hold a separate hearing to consider how best to spend the $800,000 in the public interest, the statement said.
The penalties must be paid by company shareholders and not passed on to consumers, the PUC said.
Northern Utilities, a subsidiary of NiSource, provides natural gas to 42,000 customers in Maine and New Hampshire.
Unitil will buy the Northern and a related NiSource company, Granite State Transmission of New Hampshire, for $160 million and an estimated $25 million for natural gas inventories.
Unitil has agreed to freeze base rates in Maine for two years after the sale.