Peel potatoes and cut into 1" cubes. Bring water to a boil in large saucepan and add potatoes. Cook until tender and drain reserving liquid. Set aside potatoes and measure 1 cup cooking liquid (adding water if necessary) and set aside. Peel and finely chop onion and chives. Melt butter in saucepan over medium heat. Add onions and chives to saucepan and cook, stirring frequently until tender, but not brown. Add flour to saucepan. Season with red pepper and black pepper to taste. Cook 3 to 4 minutes. Gradually add potatoes, reserved 1 cup cooking liquid, milk/cream, and sugar to onion/chive mixture in saucepan. Stir well and add cheese and bacon. Simmer on low heat for 30 minutes, stirring frequently. Serve with fresh chives, cheese, and bacon.