Serrano Chiles should be seeded and chopped. * Use Shredded Monterey Jack Cheese in this recipe. Cook and stir the bell pepper, onions, and chiles in the margarine in a 25 cm skillet until the pepper is tender. Heat the milk, water, salt and pepper to boiling in a 2 litre saucepan. Gradually add the grits, stirring constantly, and reduce the heat when they have all been added. Simmer uncovered, stirring frequently, until thick, about 5 minutes. Stir in the bell pepper mixture and cheese.