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The incipient faults in underground cables are largely caused by voids in cable insulations or defects in splices or other accessories. This type of fault would repeatedly occur and subsequently develop to a permanent fault sooner or later after its first occurrence. Based on the methodology of wavelet analysis, a method is presented to detect and classify the incipient faults in underground cables at the distribution voltage level. The proposed method is designed to be possibly applied in real systems. Therefore, different fault conditions and system configurations are examined, and other transients caused by permanent fault, capacitor switching, load changing, etc., can also be discriminated.