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Peel potatoes and cut into 1 inch cubes.
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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.
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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.
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Add flour to saucepan; season with pepper flakes and black pepper to taste. Cook 3-4 minutes
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Gradually add potatoes, reserved 1 cup cooking liquid, milk and sugar to onion mixture in saucepan; stir well. Add cheese and ham. Simmer over low heat 30 mins, stirring frequently.
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Enjoy! =).