As power systems are evolving, engineers are facing, and will continue to face, new challenges with respect to maintaining the system in terms of stable operation. Many different forms of generation are becoming prevalent, including; small synchronous generators, photovoltaic generation, and energy storage techniques in the form of battery and ultracapacitor systems. One of the evolutions occurring in the power system is the emergence of microgrids, small power systems capable of isolating from the major power grid in the form of islands. Microgrids use distributed generation to provide power to small communities, and they come with several advantages and disadvantages. This thesis shows the design process employed to model a microgrid, which contains a variety of distributed resources, in PSCAD, as well as investigate the transient instability of the microgrid when transitioning to islanded operation. Modeling techniques for both grid-connected and islanded operation of the microgrid are considered in this study. In addition to modeling techniques, the effectiveness of proper control of energy storage assets in a microgrid is demonstrated through the implementation and comparison between real & reactive power regulation and voltage & frequency regulation. v ACKNOWLEDGMENTS I would like to thank all of my friends and family for their endless support. I especially would like to thank a few special people. Without the help of my parents, Ken and Janie, I would not have been able to achieve many of my recent accomplishments. My brother and sister, Erik and Yvette, have always been a source of support that I am truly grateful for. Of course, much of my appreciation is owed to my loving girlfriend, Youlen, not only for her support, but for dealing with the distance along with long hours and nights spent working as I finished the Master's Program at Cal Poly. I am also highly indebted to Dr. Taufik for his guidance and support during my graduate education. Without Dr. Taufik, this Thesis would truly not have been possible.