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This paper presents modeling of interruptible loads (ILs) in an unbalanced distribution system. These ILs are then incorporated in the local distribution company's (LDC's) operational framework so as to optimally select the location (node and phase) and amount of IL for a given incentive rate offered by the LDC. The ILs are selected from the contracted customers from the LDC's perspective of minimizing the total cost of energy drawn from the external grid and the total payment made to customers towards procurement of ILs. The proposed model is tested on the IEEE 13-node test feeder. Results show that the proposed IL program is able to reduce costs and aid in feeder operation during peak load periods in the context of smart grids.