Energy limited hydro generation is one of the important sources for electricity. Hydro units, however, behave differently as compared to conventional fossil fueled units. The output of these facilities is largely dependent on the availability of the primary resource of water while the effect of unit forced unavailability is usually not significant in comparison. Energy limited hydro resource can, however, significantly affect electric power system reliability. It is therefore very important to accurately incorporate energy limited nature of hydro units in reliability assessment. This paper presents a new capacity modification technique to model energy limited characteristics of hydro generation serving as base load units. In this method the effect of unit's energy limitation is reflected by modifying the capacity and treating the energy limitation as reduced capacity. The method is illustrated using simple examples and applied to model hydro units in two reliability test systems. The results are compared with those obtained using the load modification approach proposed in other published work. The two methods produce exactly the same results. One of the salient advantages of the proposed method is that reliability indices can be calculated by convolving appropriate load model with system capacity outage probability table. It is, therefore, easier to incorporate energy limited hydro units in commercially available reliability evaluation softwares. The proposed technique also has the advantage of easily incorporating large number of hydro units in reliability evaluation as compared to other methods.