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Peel potatoes and cut into 1-inch cubes.
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Bring water to a boil in large saucepan.
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Add potatoes and cook until tender.
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Drain, reserving liquid.
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Set aside potatoes.
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Measure 1 cup cooking liquid, adding water, if necessary. Set aside.
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Peel and finely chop onion.
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Melt butter in saucepan over medium heat.
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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.
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Cook 3 to 4 minutes.
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Gradually add potatoes, reserved 1 cup cooking liquid, milk and sugar to onion mixture in saucepan; stir well.
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Add cheese and ham.
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Simmer over low heat 30 minutes, stirring frequently.
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Stor leftovers, covered, in refrigerator.