Faced with escalating water rates, debt, lawsuits, a costly groundwater recovery project and a looming need to replace aging water infrastructures, San Juan Capistrano is contemplating transferring its water and wastewater operations to an outside service provider. The City Council last week directed city staff to prepare an application to the Orange County Local Agency Formation Commission, asking for an analysis of the most effective way to provide services. The council set aside $150,000 from the city’s water fund for costs associated with a LAFCO study. … The council’s 3-1 vote, with Sam Allevato dissenting and Derek Reeve absent, came after a year-long study by consultants who concluded that San Juan’s water and sewer systems are functioning well, but the water system faces steep challenges. … Consultants with the firm Brownstein Hyatt Farber Schreck said it could mean sale or transfer of city utilities to another provider, or a contract with a service provider.