Cook bacon and onion in 5 quart Dutch oven or stock pot over medium heat until bacon is cooked through and onion is translucent. Remove bacon and onion and drain, pouring off fat.
Place potatoes, celery, carrots, water and 1 1/2 tsp salt in pan. Cover and cook on medium-high heat until mixture comes to a boil; about 5 minutes.
Reduce heat to low and simmer 15 minutes or until vegetables are tender. Drain.
Place half the potato mixture and milk in blender. Puree until smooth.
Return pureed mixture to the pot with the other half of the soup. Add the cooked bacon and onions back to the pot.
Stir in cream, 1/2 teaspoon salt (or to taste) and 1/2 tsp pepper.
Cook over medium heat, stirring occasionally for 15 minutes or until hot. Do not boil.
Ladle hot soup into serving bowls and top with a sprinkle of cheddar cheese.