Nestle scales back plans to bottle water in Northern Calif.

The announcement by Nestle Waters North America comes after years of opposition by environmentalists and a group of residents in the rural town of McCloud.

With soaring fuel and transportation costs, building a 1 million square foot facility at the base of Mt. Shasta no longer makes economic sense, said David Palais, Nestle's Northern California natural resource manager.

The company also has built a plant in Denver and expanded other facilities in the West. Palais told The Associated Press that those expansions make a large plant in California less necessary.

Nestle SA signed a contract in 2003 with the McCloud Services District to pump up to 521 million gallons of water a year. In exchange, the Swiss food and drink company agreed to pay between $250,000 and $350,000 a year to the town of McCloud, which is about 200 miles north of Sacramento.

Palais said the company now will seek permission to pump a fraction of that water and build a much smaller plant of about 350,000 square feet.

Nestle will ask for just 200 million gallons of water a year from the three natural springs that supply McCloud. He declined to say whether the company would ask to have its payments to the town lowered.

The company said it also has agreed to two years of monitoring on Squaw Creek, a nearby trout stream. Fishermen, environmentalists and scientists had feared the stream might become warmer and lower if Nestle went ahead with its original pumping plans.