Bristol Water could build a new reservoir in the Cheddar Valley.
The company was recently allowed to increase prices
The new reservoir forms part of the company's plans for the next 25 years and will be needed because of rising demand for supplies.
The company has identified land just south of the existing Cheddar reservoir as the best possible site.
The proposal is part of the company's Water In The Future document, which also recommends switching everyone to water meters by 2035.
Work on the new reservoir, if it gets the go ahead, would not start until 2020.
The company was recently allowed to increase its prices after a review by the water regulator Ofwat.
Average household water supply bills will rise by £5 a year in April to £144 before inflationary adjustments.