1. Preheat oven to 350º F.
2. In a saucepan, bring the water and milk to a boil. Add the salt and slowly add the grits and return to a boil, stirring constantly for one minute.
3. Reduce the heat, cover, and cook for 3 minutes.
4. While stirring the grits, add the 1/2 cup of butter and stir until butter is melted.
5. Cover and cook 3-5 minutes, or until grits are thick and creamy. Remove from heat and set aside.
6. Using a skillet, saute the onions in the remaining tbsp. of butter for 1 minute.
7. Add the processed cheese, garlic powder, 1 1/2 cups cheddar, and onions to the grits, and stir until the cheese is melted.
8. Add the tomatoes and mix well.
9. Pour the grits into a greased 8x11 inch casserole dish and bake for 40 minutes.
10. Sprinkle remaining 1 cup cheese over the casserole for the last 5 minutes of cooking time.