A distributed generation (DG) system is an on-site power generating system that can reduce the operating cost of a building. DG systems are more efficient than centralized systems because they generate and consume power on-site. The system modeled is a combination of an internal combustion engine, an electric generator, an air conditioning unit, and a hot water storage tank, with additional minor components. Using natural gas, the engine generates usable energy which is converted to electricity through a generator. The engine also produces usable (otherwise wasted) heat, which is transferred to the hot water storage tank by the combined cooling, heat, and power (CCHP) system. Additional heat rejected from the engine passes through a heat exchanger in order to warm the building.The electricity generated by the generator is used to power the air conditioning unit and provide power for appliances. The purpose of the study was to determine the optimum size of the main equipment to supply the annual energy demand of a typical residential building. Optimizing the size of the main equipment of a DG system would produce enough data that make implementation practical.