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Heat a large saucepan to medium-high. Add butter and onion, and sauté until translucent. Season with ½ teaspoon salt and ¼ teaspoon pepper.
Add flour and stir until absorbed. Add vegetable broth and bring to a boil. Reduce heat to simmer and stir frequently, 5 minutes.
Add potatoes and simmer until potatoes are just tender. Add cream cheese and milk and 1 cup Colby Jack cheese. Cook on low heat, stirring often, until soup is creamy and potatoes are thoroughly cooked. In the last 5 minutes of cooking time, add 1 cup frozen peas and more salt and pepper, to taste. Soup is ready once peas have heated through.
To serve, ladle soup into a bowl. Top with chopped bacon, green onion, and reserved cheese.