Improved air-conditioning technology has the greatest potential impact on the electric industry compared to any other technology that uses electricity particularly during summer peak electric demand. Gas engine-driven units can provide overall peak load reduction and electric grid relief for summer peak demand. Peak-load conditions can lead to high electricity prices, power quality problems, and grid system inefficiencies, and even failures. Improved air-conditioning technology thus has the greatest potential impact on the electric grid compared to other technologies that use electricity. Thermally-activated systems, such as natural gas engine-driven heat pumps, can provide overall peak load reduction and electric grid relief for summer peak demand. This paper describes the development of an innovative 10 refrigeration ton (RT) natural gas engine-driven heat pump (GHP) for commercial application. The unit was tested at various Air Conditioning and Refrigeration Institute (ARI) heating and cooling conditions in a psychrometric chamber at Oak Ridge National Laboratory. The gas COP at 47°F rating condition exceeded the goal of 1.6 at both high and intermediate engine speeds. The gas COP in cooling mode also exceeded the goal of 1.2 at 95°F rating condition. In this study, principles of operation, unit performance and benefits are discussed.