Start by setting your oven to 350°F (175°C). Grease your 9x13 inch baking dish with butter or cooking spray. This prevents the grits from sticking to the sides.

Place a large saucepan over medium-high heat. Add the water, milk, and salt to the pot. Bring the mixture to a gentle boil. Watch it closely so the milk does not boil over.

Slowly pour the grits into the boiling liquid. Use a whisk to stir constantly. This prevents lumps from forming in your dish. Reduce the heat to low and cover the pot.

Let the grits cook for about 20 to 25 minutes. Stir them every few minutes to keep them smooth. They should absorb most of the liquid and become very thick.

Remove the pot from the heat. Stir in the butter until it melts completely. Add 1.5 cups of the shredded cheddar cheese. Keep stirring until the cheese is gooey and well mixed.

Add the garlic powder and black pepper. If you like a little heat, add the cayenne pepper now. Stir well so the flavors are even throughout the grits.

In a small bowl, beat the two eggs. Slowly stir a spoonful of warm grits into the eggs. This warms them up so they do not scramble. Then, pour the egg mixture into the pot.

Pour the creamy grit mixture into your prepared baking dish. Spread it out evenly using a spoon or spatula. Sprinkle the remaining 1/2 cup of cheese over the top.

Place the dish in the center of the oven. Bake for 35 to 40 minutes. The top should be slightly golden and the cheese should be bubbly.

Remove the dish from the oven. Let it sit for 5 to 10 minutes before serving. This allows the grits to set and makes them easier to scoop.