My guess would be a problem with the fluid simulation, but I didn't think I was doing anything bizarre. I could maybe understand the flooding, but dropping down to 0.14 deep is odd, because there's nowhere for the water to go. The river even dries out beyond the dam for a few seconds because the water level drops below the dam level, and then rises up and floods, and then drops again, and so on, all within seconds, without me doing anything. Now, the water level downstream of the floodgates oscillates between about 0.14 (so my waterwheel stops) and 1.14 deep (which floods my buildings). Then I built some 2 deep floodgates at the start of that in a 2 deep bit of river, and set them to hold back 1.5 deep water so I could handle longer droughts. To solve this issue, you can use floodgates. I have a 1 deep stretch of river with a dam at the end, and all was fine. loodgates require planks and logs to build, with the amount depending on the height of the floodgate. The range of adjustment for the double floodgate. Paths can not be placed on top of floodgates. This extra ability comes with an added build cost of requiring planks. By being height-adjustable the double floodgate offers more control over water than dams do. I'm not sure if this is something I've done wrong, or a bug (it's Early Access, so that's not unexpected) Double floodgate is a landscaping building that blocks the flow of water up to an adjustable height.

Timberborn floodgates