Preheat oven to 350 degrees and grease a 9x13-inch casserole dish.
Cook bacon until crispy in a large saucepan. Remove with a slotted spoon and place on a paper towel-lined plate.
Pour out all but 2 tablespoons bacon grease.
Add water, chicken broth, both peppers, salt, and garlic powder to the saucepan with the bacon grease.
Bring to a boil. Gradually stir in grits.
Reduce heat some and cook, stirring frequently for 5 minutes.
Remove from heat and stir in Velveeta and butter until melted.
Stir in milk, green onions, and eggs, plus half the white cheddar.
Pour mixture into prepared pan. Sprinkle remaining shredded cheddar and the bacon on top.
Bake uncovered 40 to 45 minutes.