An optimization problem called “the feeder addition problem” is defined to determine potential locations for adding interties between feeders in a legacy radial distribution system to improve the reliability in the islanded mode of operation - a desired feature under the Smart Grid Initiative. Numerical bounds are established on the growth of the feeder addition problem. The feeder addition problem in a popular test system is handled using two different optimization methods to balance cost and reliability for utility applications. To approximate the power output of the distributed generation sources considered, an empirical equation incorporating the capacity factors of renewable energy-based distributed generation sources and results of an industry survey is used. Both optimization methods are shown to improve the system reliability for cases where the distributed generation output exceeded feeder demand.