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Sentence Correction (SC) | Re: In January this year, a chemical used in the processing of coal leaked

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Hi, I got this question right but still have a doubt.

Can an expert please explain to me what exactly in option C is the "interrupted water supply..." phrase before "and called" modifying? Is the the noun Elk river?

Also I eliminated this choice using the logic that "and called" is parallel to "used", hence its illogical. Is this ok?
Kindly write back on these two things.

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