Massive Water Project Approved : Public works: The $160-million plan includes building underground tanks at Lake Hollywood and pipelines to the Westside. Conservationists say it will ruin natural habitat.

After five years of difficult negotiations, the Los Angeles Department of Water and Power has received approval to launch its biggest construction project in a decade--a $160-million complex of underground water storage tanks and pipelines at Lake Hollywood that will dramatically alter the natural landscape and cause substantial street disruptions on the Westside for up to four years.

The costly project, aimed at complying with federal rules on the safety of water in open reservoirs, has been reluctantly endorsed by homeowners in the Lake Hollywood area after years of mediation because they believe that it will stave off proposed development in the hills.

The plan is strenuously opposed by conservationists, who complain that the agency paid an exorbitant price for the land and who contend that the project will ruin animal habitats and unique riparian woodlands in the eastern Santa Monica Mountains.

It is also opposed by homeowners in the faraway Cheviot Hills area, whose streets will bear the brunt of extensive pipeline construction.

The DWP would bury four 15-million-gallon storage tanks next to the popular lake and require the laying of nearly eight miles of large pipeline from Westwood to Hancock Park.

Officials at a state parkland agency have expressed outrage that the DWP has been authorized by its board of commissioners to pay a real estate investment group more than double the appraised value for 166 acres of open space surrounding the spot where the tanks would be buried.

In an appraisal commissioned last year by the Santa Monica Mountains Conservancy and the DWP, the land owned by Lake Hollywood Ltd. was appraised at $3.1 million. A subsequent appraisal by the DWP on its own declared the land to be worth $4.6 million. The firm has been trying for years to obtain city approval to build up to 64 million-dollar homes in a gated community on that property.

DWP commissioners Tuesday authorized the agency to pay $8.25 million for 106 acres of the property, and is in negotiations with a second party to pay $1.25 million for the other 60 acres.

“They’ve gone off and negotiated something on their own and it’s absolutely outrageous to me,” said John Diaz, land acquisition chief of the Santa Monica Mountains Conservancy. “That’s an offensive price.”

The purchase of the land is critical to the completion of the vision that the federal government, DWP and surrounding homeowners have for the Hollywood Reservoir.

In 1988, the federal Environmental Protection Agency declared that all municipal water districts must begin to clean up water in open reservoirs by the mid-1990s. In Los Angeles, the DWP initially decided to cover its open reservoirs, but public opposition led to mediation and the consideration of alternatives.

A mediation panel composed of DWP officials and representatives of homeowners in the mountainous Lake Hollywood area brainstormed the idea to bypass the Hollywood Reservoir entirely and store the water necessary to serve its area in tanks with a total capacity of 60 million gallons.

The 1 billion gallons in Lake Hollywood will be taken out of commission, to be used primarily as emergency backup.

To sink the tanks in the ground on a 10-acre flat parcel of land that the DWP already owns next to Lake Hollywood, the agency must excavate at least 800,000 cubic yards of dirt.

Bob Yoshimura, DWP assistant director of water engineering design, said the department determined that it would cost $25 million to truck the dirt out of the Lake Hollywood basin. Instead, he said, it has decided to spend $5 million to spread the dirt around the surrounding canyons and hillsides.

The notion of re-landscaping nature has conservationists up in arms. Critics also fear that the open space will be returned to private hands after the DWP project is done.