Grits, Cheese and Chile Casserole

Preheat the oven to 350 degrees. Grease a shallow 1 1/2-quart baking dish.

In a large saucepan, combine the water, 1 cup of the milk, and the salt. Bring to a boil over high heat. Reduce the heat to medium- low, and gradually stir in the grits. Cook, stirring, until very thick and grits are tender, 8 to 10 minutes. Remove from the heat and stir in the butter, cheese, and the remaining 1 cup milk. Gradually stir in the eggs. Stir in the chiles and pepper. Spoon into the prepared baking dish and bake until the top is browned and a toothpick inserted in the center comes out clean, about 1 hour.