In the present paper, the effects of inlet fogging system on the first and second law efficiencies are investigated for a typical power plant (Shahid Rajaee) which is located near Ghazvin in Iran. Also a new function is proposed for system optimization that includes the social cost of air pollution for power generating systems. The new function is based on the first law efficiency, energy cost and the external social cost of air pollution for an operational system. Social cost of air pollution is based on the negative effects of air pollution on the health of society and environment. The economic aspect of these effects is called external social cost of air pollution. Other pollution sources such as water, soil, etc. produced by an operational power generation system are ignored. The theoretical results obtained from the model are validated by registered practical performance results from Shahid Rajaee power plant. It is concluded that using of inlet fogging system, increases the average output power production, the first and the second law efficiencies through three months of year (June, July and August) by 7%, 5.5% and 6% respectively and reduces the objective function value by about 4%. (C) 2011 Elsevier Ltd. All rights reserved.