Effect of network reconfiguration on power quality issues of distribution system has been investigated. The problem of network reconfiguration is reformulated with an objective to improve the power quality of the distribution system. Along with the traditional objective of loss minimization, power quality related objectives such as minimization of harmonic distortion of the voltage waveform, minimization of voltage unbalances at the nodes and maximization of sag voltages are identified as the objectives of reconfiguration. Branch exchange technique has been used to establish each of the objectives. The problem has also been formulated as a multi-objective optimization problem. The multiple objectives are, however, incorporated into a single objective using weighting multipliers and branch exchange technique has been judicially applied to take care of all the objectives. It is found that network reconfiguration can be used as an effective tool to improve the power quality of distribution system. Besides, the distributed energy sources also have great impacts on distribution network, as their size and locations are found to have great importance on the power loss, voltage sag, voltage harmonic distortion and unbalance. The effectiveness of the network reconfiguration on power quality issues have been studied on 25-bus network and IEEE 33-bus network with and without presence of distributed generation and VAr sources.