| Sorcerer-Conj |
This is an interesting fantasy engineering problem. If you're trying to repair the dam, why not have it after the PCs have attained a high enough level for Wall of Stone (cleric 5, druid 6, sorcerer/wizard 5)? The spell is shape-able, allowing a PC to fix the damage to the dam.
The magical power source is harder, of course. The magic circle for a greater binding is already there, and most devils and demons are immortal. Undead are immortal too - but are harder to keep unless you use the summoning magic circles specifically for that reason. The local farm sounds much easier to maintain, but it's going to be difficult to get all those animals down the stairs, correct?
Someone's going to have to write down all the instructions on how to do this, how to use the circles, and how to interpret the magical controls of the dam. A good stonecutter or a mage using Arcane Mark could write the six to ten sentences on the walls of the interior of the dam in order to instruct future generations on how to use the controls. Liberal use of Continual Flame would help matters as well.
If you tell all of Turtleback Ferry and Fort Rannick about the magical properties of the dam, then you are going to have to protect it. Protect it from the evil spellcasters trying to research/steal/destroy the ancient Varsian magic, from ogres trying to hold the dam hostage against the humans, and then there's the crazy Druids...
As for Storval Deep, I would worry about the silt making the lake "shallower". This would make the lake grow in size even as it became more shallow, changing the ecology of Storval Deep from a haven for deep-water, fresh-water monsters to ones more used to shallow depths (i.e., crocodiles). This might cause the lake to form a second river as a mountainous pass is the new low point for the rising waters. Lake Coal is one possible relief valve for the rising waters.
From a non-magical standpoint, a dedicated engineering group could change the spillwater coming out of the skull's mouths into Golarion's first electrical-generation dam. Add a secondary structure to the front of the dam and you have a Hoover project providing megawatts of power to a local area.
If Skull Crossing does ever "go", it would be interesting to see if Magimar gets a tidal wave from the river or if the Mushfens would absorb the blow.