Chunky Potato Soup

3 medium red potatoes
2 cups water
1 small onion
3 Tbls. butter
3 Tbls. all-purpose flour
Crushed red pepper flakes
Ground black pepper
3 cups milk
1 cup shredded Cheddar cheese
1 cup cubed cooked ham

Peel potatoes and cut into 1-inch cubes. Bring water to boil in large saucepan. Add potatoes and cook until tender. Drain, reserving liquid. Set aside potatoes. Measure 1 cup reserved liquid, adding water, if necessary; set aside. Peel and finely chop onion. Melt butter in saucepan over medium heat. Add onion to saucepan and cook, stirring frequently, until onion is translucent and tender, but not brown. Add flour to saucepan; season with pepper flakes and black pepper to taste. Cook 3 to 4 minutes. Gradually add potatoes, reserved liquid, milk and sugar to onion mixture in saucepan; stir well. Add cheese and ham. Simmer over low heat 30 minutes, stirring frequently. Store leftovers, covered in refrigerator. Enjoy!