After the Rappahannock Navigation Company failed, the Fredericksburg Water Power Company purchased the company's rights on the Rappahannock and Rivanna River. The transportation rights were useless, but the company had acquired the land adjacent to the Rappahannock and Rivanna rivers that might be flooded by proposed dams.
The Fredericksburg Water Power Company built an 18' high dam at Fredericksburg in 1855, plus a canal system through the countryside outside the town. The canals carried the water to mills downstream, where the falling water turned waterwheels that powered the machinery inside.
The Fredericksburg Water Power Company became part of the Spotsylvania Water Power Company in 1910, one year after it had built a concrete dam 4' higher than the wooden 1855 dam. The extra height allowed the new 22' tall dam to supply 8,000 horsepower, compared to the 5,000 horsepower provided by the earlier dam.1. The Virginia Electric and Power Company (VEPCO) acquired the Spotsylvania Water Power Company (along with most other private utilities and built a hydropower plant to generate electricity from the falling water.
The City of Fredericksburg acquired the Embrey Dam from the local electrical utility in 1968, after VEPCO closed the small hydropower plant because it was inefficient compared to larger facilities (especially nuclear power plants). Until 1999, the city maintained the VEPCO canal that runs through Fredericksburg in order to bring water to the municipal water treatment plant. The city now relies upon a new plant upstream on Motts Run, and removal of the Embrey Dam started in 2004.
Until 2004, Embrey Dam blocked passage of anadramous fish such as American shad and striped bass. They could not spawn in the main stems of the Rappahannock and Rapidan and in tributaries to those rivers upstream of Fredericksburg, because the fish could not jump over a 22' high wall. Those species are essential to restoring the health of the Chesapeake Bay. By some estimates,2 170 miles of suitable habitat were blocked by the dam. Repairing or reconstructing Embrey Dam to meet current safety and environmental requirements would have cost Fredericksburg $10 million - 25% more than the estimated cost of removing the dam. Thanks to the efforts of Senator Warner, the US Congress agreed to fund the dam removal.

One challenge - what to do with the sediment that has accumulated behind the dams since 1855? There's little industry upstream of Fredericksburg, so the level of toxic chemicals in the sediments is very low. They do not need to be handled as hazardous waste, but removing the dam and allowing a slug of sediments to wash downstream would have caused a substantial short-term impact on the aquatic vegetation and fish. The Celebrate Virginia development offered to use the sediments as fill material, reducing the cost of transport for the Corps of Engineers and increasing the amount of flat land that the real estate developer can create, but the City of Fredericksburg wanted to own the valuable flat land that would be created.
Sanford, Douglas, "Embrey Dam and a Context for Hydroelectricity in Fredericksburg," The Journal of Fredericksburg History, pp. 13-28, Volume 3, 1998