Preheat oven to 350°F. Sift flour, baking powder and baking soda on waxed paper. Butter and flour two 9" cake pans. In large mixing bowl, beat sugar and egg until sugar is dissolved. Add butter and mix into egg mixture. Add sour cream, water and vanilla; beat again. Add flour mixture and cocoa; beat slowly until flour is absorbed. Do not overbeat. Fold in chocolate pieces. Divide mixture in prepared pans.
Bake 35-40 minutes or until tested done. Cool cakes on wire racks for 10 minutes. Remove from pans and cool completely. Frost.
CHOCOLATE BUTTER ICING: In a small saucepan, melt chocolate chips in the coffee over very low heat. Remove pan from heat. Beat in butter, 1 Tbsp. at a time, until smooth. Set pan in bowl of ice and beat until icing is spreadable and holds its shape.