In a large saucepan, combine the onion, jalapeno, 1/2 teaspoon salt, and oil. Cover and cook over medium-low heat, stirring often, until the onions and peppers have softened. Stir in the garlic, chili powder, cumin, and sugar, and cook until fragrant.Stir in the tomato sauce and water. Bring to a simmer.
Place chicken into the sauce. Reduce heat to low, cover, and cook until chicken is cooked through, about 10-15 minutes. Transfer the chicken to a plate, and set aside.Continue to simmer the sauce over medium heat until slightly thickened.
Strain the sauce through a fine mesh strainer into a medium bowl, pressing the onion mixture with a spoon to extract as much liquid as possible. Season the sauce with additional salt and pepper to taste.Transfer the leftover onion mixture from the strainer to a large bowl and set aside. Shred the chicken into bite-sized pieces and add to the onion mixture in the large bowl. Stir in 1/4 cup of the reserved enchilada sauce, 1/2 cup cheddar cheese, 1/2 cup Monterey Jack cheese and the cilantro. Toss to combine.Stack the tortillas on a plate and cover with damp paper towels. Microwave on high until warm and pliable. Spread the tortillas on a clean work surface, and spoon 1/3 cup of the chicken mixture evenly down the center of each. Tightly roll each tortilla and lay seam-side down in a greased 9×13 inch baking dish.
Heat oven to 400 F. Pour the enchilada sauce evenly over the top of the enchiladas. Top with the remaining cheese. Cover the dish with foil and bake 20-25 minutes or until heated through.
Remove the foil and bake until the cheese browns. Remove from the oven and Serve with your favorite toppings.