Currently, reliability assessment methods have been developed to accommodate distribution systems. These methods can compute a customer's reliability based on the system topology and component characteristics. The reliability assessment gives the utility an idea of where the problem areas are in a system. However, most of these methods lack a detailed representation of distribution substations, modeling only a small part of the substation, such as a transformer, or a transformer and a breaker. They fail to represent the rest of the substation like the switchgear and bus topology configurations. Without modeling the entire substation, the reliability calculation will suffer in accuracy and could give engineers misleading results. In addition, most reliability assessment methods do not take into account the degradation of component failure rates. The failure rates or hazard rates are treated as constant under exponential recovery models. The historical field data collected by utilities in the recent past has shown the contrary. Most power system components including lines, transformers, capacitors and protection equipment, exhibit failure rates that change with time. New component failure rates need to be integrated into the reliability models to resemble these time-varying effects. The objective of this research is to develop a reliability assessment method, which is relevant to all distribution substation configurations for a typical utility's system. The new method will account for the degradation of component failure rates and give a detailed representation of substation equipment. In addition, the interruption impact to the customers will be assessed to determine the influence of time-dependent failure rates.