A novel algorithm considering the operation conditions and failure types is proposed to evaluate the substation reliability. As some devices' outage probabilities vary with their operation conditions, such as preventive maintenance measures and external weather and internal aging conditions, a time-varying failure-rate model is presented first. In order to deduce the failure events of the system, including passive failures, active failures, breaker stuck conditions, and overlapping failures, a substation zone graph is created, and with the minimal cutsets from the zone graph to complete the failure events, the bus scheme reliability calculation model is proposed. Applying the model and algorithm to evaluate some substation systems, the results show that the operating conditions and failure types have a great impact on system reliability.