In a large skillet, heat 1 tablespoon olive oil.
Sauté onion until slightly browned. Add the garlic and the next 4 ingredients (chili powder through salt). Cook and stir until fragrant, about 30 seconds.
Add the tomato sauce and water and bring to a simmer. Simmer uncovered for 8 minutes, stirring occasionally. Set sauce aside. Preheat oven to 350 degrees.
In a large skillet, heat remaining 1 tablespoon olive oil. Sauté pepper and onions for 5 minutes. Season with salt and pepper to taste.
Layer the bottom of a large casserole dish with shredded chicken. Top with the peppers and onions.
Pour enchilada sauce over top. Top with cheese and green onion. Cover with foil and bake for 20 minutes.
Remove foil and cook for another 10 minutes until cheese is melted. Serve hot.