This study emphasizes the urgent need for systems that monitor the operational states of primary electrical equipment, particularly power transformers. The rapid digitalization of and increasing data volumes from substations, coupled with the inability to retrofit outdated equipment with modern sensors, underscore the necessity for algorithms that analyze the operational parameters of digital substations based on key power system metrics such as current and voltage. This research focuses on digital substations with Architecture III and aims to develop an algorithm for processing digital substation data through an appropriate mathematical tool for time-series analysis. For this purpose, the fast discrete wavelet transform was chosen as the most suitable method. Within the framework of the research, possible transformer faults were divided into two categories by the nature of their manifestation. A mathematical model for two internal transformer fault categories was built. The most effective parameters from the point of view of the possibility of identifying an internal fault were selected. The proposed algorithm shows its effectiveness in the compact representation of the signal and compression of the time series of the parameter to be monitored.