The nature of the exergy consumption of district heating (DH) systems can not be explained clearly using the first law of thermodynamics. Exergy analysis method was used. A case study based on a DH system in Inner Mongolia, China, was carried out. The impact of operating parameters and design parameters on the energy quality of circulating water and exergy losses of DH systems during heat distribution was revealed. Results show that the energy quality of circulating water and exergy losses of DH systems during heat distribution could be reduced by decreasing the indoor temperature or increasing radiator areas. Compared with other factors, the outdoor temperature and indoor temperature have a greater impact on the energy quality of circulating water, exergy losses of circulating water, and total exergy losses during heat distribution. When the outdoor temperature varied by 10.00%, the average variation rates of such parameters were 85.12%, 90.02%, and 64.60%, respectively. When the outdoor temperature was 273.00 K and indoor temperature varied by 50.00%, the average variation rates of such parameters were 83.88%, 99.34% and 32.87%, respectively. It can be observed that the energy quality and exergy losses of DH systems can be reduced in the operation process.