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Design and development of fault diagnosis schemes (FDS) for electric power distribution systems are major steps in realizing the self-healing function of a smart distribution grid. The application of the FDS in the electric power distribution systems is mainly aimed at precise detecting and locating of the deteriorated components, thereby enhancing the quality and reliability of the electric power delivered to the customers. The impacts of two types of the FDS on distribution system reliability are compared and presented in this paper. The first type is a representative of the FDS which diagnoses the deteriorated components after their failing. However, the second type is a representative of the FDS which can diagnose the failing components prior to a complete breakdown and while still in the incipient failure condition. To provide quantitative measures of the reliability impacts of these FDS, the comparative and sensitivity case studies are conducted on a typical Finnish urban distribution network.