What you are seeing is completely normal. The "smoldering" is really steam from heat being generated by the early stages of decomposition; ditto the "ashy" appearance. They are as effective as a mulch in this state as they are brand new off the truck or out of the chipper and many gardeners prefer to let them age a bit anyway before application.

We had a tree removed last fall and had the chips piled on the driveway. When I dig into them to move them there is a fungal cloud that comes up and blows in the wind. It turns out either I am allergic to the fungi or something, because if I breathe too much I get a horrible case of bronchitis lasting for weeks if I don't get it treated. I now wear a respirator (pink filters) and cannot smell the fungus at all while I'm digging.

If you want to slow down the decomposition process you can spread the wood chips out on plastic or hardscape so they get more evaporative air.

You are seeing the beginning of what could become a nasty situation. What you are seeing the Spontaneous combustion. The problem will be proportional to the amount of wood chips you have. After Fran hit Wilmington created a wood chip pile from all of the trees that came down, The chips spontaneous combusted and burned for several years. This pile was 50 to 60' deep and spread over several acres.

While not wood chip spontaneous combustion can occur in much smaller amounts of the right material. We almost lost our house thru a series of will intention associated events. We had our hard wood floor finish. In one of the last sanding, the fine materials were put in a bag, and accidentally ended up in the garage with a pile of card board from our move. When we discovered the problem, the garage was filled with smoke and the sanding were glowing red. Fortunately I discovered in soon enough and got it out of the garage and filled the garbage can with water.

The best way to prevent Spontaneous combustion is to keep the pile small (or thin) so heat can not accumulated. If you suspect the pile is spontaneous combusting, soak the pile in water and break it a part.

I did spread the pile out a bit today and we’ve had a nice rain. I’ll do the same tomorrow

We had a wood chip fire in San Antonio several years ago. They tried many ways to put the fire out. What finally worked was to run the pile through a chain conveyor belt and spray water on it along the way. It took a week or so to run it all through, but that was after months (or was it years) of burning.