In this paper optimal tie line placement problem is solved focusing on minimization of penalties incurred by Distribution System Operator(DSO) for not meeting reliability standards. A discrete function of penalty rate was taken which varies increasingly with interruption time. The risk profiles of each load was simulated by Monte Carlo simulation method considering failure outage data of the feeders and lateral transformers. A graph theory based distribution load flow has been conducted and optimal tie line location was found out by fundamental loop based algorithm. © 2017 IEEE.