The transformer differential protection of the No. 3 transformer in substation incorrectly operated when the external single-phase fault occurred on 220 kV power line. The inspection found that the secondary side of the C-phase CT 35 kV side of the transformer phase-to-ground insulation damaged, which caused the two-point earthed faults. The earth current caused the changing of ground potential of substation when the single phase fault occurred on power line, which resulted in voltage △U between the two-point earthed. The voltage ?U produced an additive current ?I, the value of which exceeded the protection settings, resulting in the malfunction of transformer differential protection. The problem has been solved by taking measures to control the value of the ground potential.