In this paper, performance of power system stabilizer (PSS) of a large thermal power plant, as tuned by the manufacturer, is investigated. Then, the stabilizer is redesigned based on extended phase compensation of the exciter input - electrical torque transfer function and root locus analysis; and its effect on local, interplant and inter-area electromechanical oscillations is thoroughly analyzed. As Bisotoun PSS has a special structure with two inputs, frequency and power, its performance is compared with power-speed PSS. The effect of PSS with existing and new tunings on transient stability is also studied. Simulation results are verified by experimental test records.