Bad data detection is the most important problem in electric power system (EPS) state estimation. The paper addresses the algorithm of bad data detection by the test equation method at decomposition of state estimation problem. The decomposition algorithm includes structural and functional decomposition of the problem. The structural decomposition is carried out by dividing the calculated scheme into subsystems with respect to voltage levels. The functional decomposition is performed in accordance with the problems solved during the state estimation process: bad data detection, state estimation on the basis of the quadratic and robust criteria. This makes it possible to increase the efficiency of bad data detection and, hence, the accuracy of estimates; organize flexible choice of the method for solving one or another state estimation problem for each subsystem, accelerate the process of measurement processing and, hence, reduce the time of the entire scheme state estimation.Measurements from PMUs placed at boundary nodes are used to increase the efficiency of methods for bad data detection in subsystems and in boundary regions of subsystems.Efficiency of the suggested approaches has been confirmed by the results of experimental studies.Paper accepted for presentation at the 2011 IEEE Trondheim PowerTech 978-1-4244-8417-1/11/$26.00 ©2011