Preheat oven to 350 degrees and spray an 11x7-inch baking dish with cooking spray.
Heat oil over medium heat in a nonstick skillet. Add sliced sausage and sauté for 2 minutes.
Add red bell pepper and onion and sauté 3 more minutes. Remove from heat and set aside.
In a medium saucepan, bring water and chicken broth to a boil. Add salt and then slowly stir grits in. Simmer grits for 5 minutes, stirring frequently.
In a medium bowl whisk together milk, eggs, and garlic powder. Slowly stir in about 1 cup of the hot grits to temper the eggs. Then pour milk/grits mixture into saucepan with the rest of the grits. Stir well to combine.
Stir in Parmesan cheese and ½ of the Cheddar cheese. Mix in the sausage mixture. Sprinkle remaining Cheddar cheese on top.