Who is in the cistern???

[Gharren]

Haha +1

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There's a guy trapped in the cabin you flood when you turn all the valves.

Great, so basically...

Spoiler below!

Daniel kills all these people under false pretenses...then rather than deciding to kill Alexander for a nobler cause, he wants to kill him simply for revenge...he goes through the whole loss of memory to try to erase his former self and become a new person...then kills one more innocent person in the name of "revenge"...wondrous...

That's a moral conflict, you can only pass through the cistern-level, if you kill other people. Same situation as the last level of Penumbra Overture with Red inside the incinerator.
Or maybe it's just one of Daniel's hallucinations, but I'm not really sure about that.