This thesis presents a method for reliability assessment of a power grid with distributed generation providing support to the system. The distributed generation units considered for this assessment are Combined Heat and Power (CHP) units operated by individual customers at their site. CHP refers to the simultaneous generation of useful electric and thermal energy. CHP systems have received more attention recently due to their high overall efficiency combined with decrease in costs and increase in reliability. A composite system adequacy assessment, which includes the two main components of the power grid viz., Generation and Distribution, is done using Monte Carlo simulation. The State Duration Sampling approach is used to obtain the operating history of the generation and the distribution system components from which the reliability indices are calculated. The basic data and the topology used in the analysis are based on the Institution of Electrical and Electronics Engineers - Reliability Test System (IEEE-RTS) and distribution system for bus 2 of the IEEE-Reliability Busbar Test System (IEEE-RBTS). The reliability index Loss of Energy Expectation (LOEE) is used to assess the overall system reliability and the index Average Energy Not Supplied (AENS) is used to assess the individual customer reliability. CHP reliability information was obtained from actual data for systems operating in New England and New York. The significance of the results obtained is discussed.