A power generation system includes a combustion turbine assembly (11) having a main compressor (12) receiving ambient inlet air, a main expansion turbine (14), a main combustor (16), and an electric generator (15) for generating electric power. An air storage (18′) has a volume for storing compressed air. A source of humidity (23, 34, 42) humidifies the compressed air that exits the air storage and thus provides humidified compressed air. A heat exchanger (24) receives a source of heat and the humidified compressed air so as to heat the humidified compressed air. A air expander (30) expands the heated, humidified compressed air to exhausted atmospheric pressure for producing additional power, and permits a portion of airflow expanded by the air expander to be injected into the combustion turbine assembly for power augmentation. An electric generator (31) is associated with the air expander for producing additional electrical power. The compressed air humidification reduces the compressed air storage volume for the same stored/generated energy.