Cheddar Potato Soup

1 large onion, chopped
3/4 cup chopped celery
1/4 cup butter
5 cups cubed peeled potatoes
3 cups water
3 cups milk, divided
4 teaspoons chicken bouillon granules
1/2 teaspoon salt
1/2 teaspoon pepper
1/4 cup all-purpose flour
4 cups (16 ounces) shredded cheddar cheese
1/2 pound sliced bacon, cooked and crumbled

In a large Dutch oven or soup kettle, saute onion and celery in butter for 5 minutes. Add potatoes and water. Bring to a boil. Reduce heat; cover and simmer for 15 minutes or until potatoes are tender.

Stir in 2 cups milk, bouillon, salt and pepper. Combine flour and remaining milk until smooth; gradually stir into soup. Bring to a boil; cook and stir for 2 minutes or until thickened. Reduce heat. Add cheese and bacon; stir until cheese is melted. Makes 10-12 servings (about 2-1/2 quarts).