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Bristol Water has chosen the site for a major new reservoir, close to its existing Cheddar Reservoir.
The site was described as “the firm favourite on economic, environmental and geological grounds”.
The company is now working towards submitting a planning application for construction to start no earlier than 2016.
A spokesman said: “The sites we have looked at all have to be within a certain reach of where the water would come from, near Cheddar. We looked at 35 all over the county [Somerset] and have been narrowing them down on geological and cost grounds.
“The one we have come up with is, we believe, the best solution, but there is a long way to go yet.”
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