I will take a crack at this…
It sounds to me like the developer's engineer is claiming that simply maintaining open channel flow in the sewer is sufficient justification to call the pipe "under capacity". Let's say his(?) calculations show a depth ratio of 90% at the estimated future peak flow. Yes, the pipe would be flowing as an open channel under these conditions, but it would have precious little reserve capacity before entering the undesirable surcharge flow regime. This is important because the estimated future peak flow is just that, an estimate. Actual future peak flows might exceed that estimate, which is why having reserve open channel flow capacity is so important for sewers and storm drains.
Let's also say that your agency has a requirement for this size pipe to not exceed a depth ratio of 50%. Obviously still open channel flow, but with a much greater reserve capacity. So, while his "design" maintains open channel flow at the estimated peak, his "design" violates your agency's requirements and provides far too little reserve capacity. Thus, his design is rejected and he is forced to eat liver and onions for a month.
As an aside, back in the mid-1980s, I modeled about four miles of a City of Los Angeles trunk sewer and its watershed as part of a study evaluating a proposed service area swap with an adjacent special district. I noticed that the City's sewer design criteria was not nearly as conservative as I was used to seeing. I don't remember the exact numbers, but it went something like this: instead of requiring a max depth ratio of 50% up to 18", then 67% up to 24", and 75% above that, the City was using something like 50% up to 12", then 67% up to 18", and 75% above that. I asked one of the City's engineers about it and he told me that because the area I was studying was gradually transitioning from single-family to multi-family, and they had a pretty good handle on what the actual peak flows would be, the City decided (probably with pressure from developers) to liberalize the design criteria in this watershed rather than require upsizing miles of pipes and tearing up miles of roads. In this case, the City determined that cutting into their reserve capacity made more engineering and economic sense.
--Fred
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"Is it the only lesson of history that mankind is unteachable?"
--Winston S. Churchill