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This report summarizes the activities of the first year of a three-year project to develop control software for micro-source distributed generation systems. The focus of this phase was on internal energy storage requirements, the modification of an off-the-shelf motor drive system inverter to supply utility-grade ac power, and a single inverter system operating in island mode. The report provides a methodology for determining battery energy storage requirements, a method for converting a motor drive inverter into a utility-grade inverter, and typical characteristics and test results of using such an inverter in a complex load environment.