Seeking a more rational and effective planning method has all along been the target of researchers and engineers working on the planning of the distribution network of power systems. This paper presents an optimization model and its corresponding algorithm by making an overall consideration of the location and capacity of substations and the network， including all sorts of constraints. The model unifies the sub-problem of location and capacity optimization of substations and that of network optimization to yield the results at the same time. The test results show that the model and algorithm are superior compared with the conventional grading planning method and have broad prospects for practical application.