Chunky Potato Soup

3 medium red potatoes
2 cups water
1 small onion
3 tbsp butter
3 tbsp flour
crushed red pepper flakes
ground black pepper
3 cups milk
1/2 tsp sugar
1 cup shredded cheddard cheese
1 cup cubed cooked ham

Peel potatoes and cut into 1-in cubes
Bring water to a boil in large saucepan. Add potatoes and cook until tender. Drain, reserving liquid. Set aside potatoes. Measure 1 cup cooking liquid, adding water, if necessary; set aside.
Peel and finely chop onion. Melt butter in saucepan over medium heat. Add onion to saucepan;cook, stirring frequently, until onion is translucent and tender, but not brown.
Add flour to saucepan; season with pepper flakes and blakc pepper to taste. Cook 3-4 mintues.
Gradually add potatoes, reserved 1 cup cooking liquid, milk and sugar to onion mix. Stir well. Add cheese and ham. Simmer over low heat 30 minutes, stirring frequently. Would be really yummy in a bread bowl!