Smart grids have been emerging nowadays as an initiative to operate modern distribution systems in a more economic and efficient way. Energy storage systems (ESSs) are one of the promising technologies that can achieve the goals of smart grids via facilitating the connection of renewable sources, improving system reliability, and controlling the net demand through peak load shaving, etc. In this paper, a comprehensive planning framework is introduced for ascertaining the most cost effective siting and sizing of ESSs that maximize their benefits in distribution networks. A probabilistic approach is further adopted that includes the consideration of the stochastic nature of system components. Such approach allows determining the optimal operation of ESS at each load state. Moreover, contingency planning decisions, in the form of load points to be shed during contingencies, are identified through the approach proposed.