This paper describes the development of a water cooled, lean burn, gaseous fueled engine designed for distributed power installations. Electric generators have become popular because they provide a portable supply of electrical power at consumer demand. They are used in critical need areas such as hospitals and airports, and have found their way into homes frequented with power outages or homes in remote locations. Gensets are available in a wide variety of sizes ranging from 1 kilowatt (kW) to thousands of kilowatts. In the mid-range the power sources are typically spark ignition, automotive type internal combustion engines. Since engines designed for automotive use are subject to different emission regulations, and are optimized for operation at RPMs and BMEPs above that of electric generator engines, modifications can be made to optimize them for gensets. This work describes modifications which can be made during remanufacturing an automotive engine to optimize it for use as a generator engine. While the work recognizes the potential for cost savings from the use of remanufactured automotive engines over that of using new automotive engines and the majority of the design constraints were adopted to reduce engine cost, the main focus of the work is quantifying the increase in fuel efficiency that can be achieved while meeting the required EPA emission requirements. This paper describes the seven combustion chamber designs that were developed and tested during this work. Friction reduction was obtained in both valve train and journal bearing design. The engine optimized for fuel efficiency produced a maximum brake thermal efficiency of 37.5% with λ= 1.63. This yielded an EPA test cycle average brake specific fuel consumption (BSFC) of 325 g/kW-hr. Modification of the spark advance and low load equivalence ratio to meet EPA Phase III emission standards resulted in an EPA test cycle average BSFC of 330 gm/kW-hr. When the engine used in this research was tested in its unmodified, automotive configuration under the EPA Compliant Test Cycle it's EPA test cycle average brake specific fuel consumption was 443.4 gm/kW-hr. This is a 34% increase in fuel consumption compared to the modified engine.