* Keystone returns insured by fixed contracts
* Refiner lawsuits a legal, not regulatory, issue
* Q1 EPS C$0.43 vs C$0.54 (New throughout with executive comments, background)
By Jeffrey Jones
CALGARY, Alberta, April 30 (Reuters) - Canada's energy sector will have to wrestle with a period of oil pipeline overcapacity, but TransCanada Corp's (TRP.TO) new Keystone system won't be affected, executives said on Friday.
The first 435,000 barrel a day phase of TransCanada's Keystone system is due to start shipping crude to southern Illinois in June. The system is starting up just after Enbridge Inc (ENB.TO) began operations on its 450,000 barrel a day Alberta Clipper pipeline.
The lines to major U.S. refining markets from Canada's oil sands in northern Alberta are starting to pump crude after the economic meltdown forced numerous Canadian producers to halt projects, cutting forecast crude volumes.
Keystone's fixed tolling structure ensures returns on the $5 billion investment, TransCanada's soon-to-be installed new chief executive, Russ Girling, said.
"The slowdown in the rate of growth of the development of the oil sands doesn't impact our shippers because they've already got their barrels dedicated to the direction that they want to go," Girling told reporters after the company's annual meeting.
Oil shipping is a new addition to TransCanada's business. It is best known for its network of gas pipelines in Canada and the United States and its power-generation operations, which include a stake in the Bruce nuclear plant in Ontario and New York City's Ravenswood generating station.
The crude earmarked for Keystone, which will include a segment to the huge storage hub of Cushing, Oklahoma, is from projects already producing or under development, he said.
The period of overcapacity is expected to be brief with oil sands volumes forecast to increase by as much a 1 million barrels a day through 2015 from projects already approved, he said. Another million barrels a day could be added by 2020.
In recent months, Total SA (TOTF.PA), Suncor Energy Inc (SU.TO), Devon Energy Corp (DVN.N) and several other companies have rekindled oil sands investment plans.
Earlier this year, shippers on Enbridge's Alberta Clipper line, led by Suncor, asked regulators to scrap a tolling deal for that line, arguing the slowdown in oil sands development made the project unnecessary at this time.
The U.S. Federal Energy Regulatory Commission denied the application but Canada's National Energy Board left the door open for some relief.
Now, three small U.S. refiners are suing TransCanada to break their contracts, and the pipeline company said it will defend itself.
Girling, who is due to replace current CEO Hal Kvisle on July 1, pointed out that the lawsuits are a legal issue, as opposed to the regulatory issue involving Clipper.
TransCanada aims to build a $7 billion Keystone expansion to carry another 600,000 barrels a day to refineries in the U.S. Gulf Coast region from Alberta. The NEB has approved the Canadian portion.
Also on Friday, TransCanada reported first-quarter net income dropped 11 percent to C$296 million, or 43 Canadian cents a share, from year-earlier C$334 million, or 54 Canadian cents a share.
Comparable earnings, which exclude most one-time items, fell 4.4 percent to C$328 million, or 48 Canadian cents per share. Analysts, on average, had expected comparable earnings of 50 Canadian cents, according to Thomson Reuters I/B/E/S.
Revenue fell 10.3 percent to C$1.96 billion.
TransCanada shares rose 19 Canadian cents to C$35.84 on the Toronto Stock Exchange on Friday. They have risen nearly 20 percent over the past 12 months.
($1=$1.00 Canadian) (Additional reporting by Euan Rocha; editing by Peter Galloway)