State of Michigan GL-ITC Project Market Assessment and Benchmarking Process Overview

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State of Michigan GL-ITC Project

Market Assessment and Benchmarking Process Overview

November 29, 2010

Copyright © EquaTerra 2010. All rights are reserved.

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Discussion Topics

Market Comparison Methodology

Market Comparisons

Conclusions


Introduction

» The purpose of this Market Assessment is to compare SoM pricing to current market pricing to determine if there are any gaps or issues. The results of the assessment will be used in helping form the scenarios for GL-ITC future state.

» EquaTerra reviewed the current SoM service cost and compared it to signed IT agreements signed within the past 36 months.

» EquaTerra’s analysis is based on our knowledge of the IT Outsourcing industry and service provider capabilities.

» EquaTerra reviewed the current structure of the SoM Data Center and the costs of providing services to customers.

» EquaTerra found the charge back structure to be generally aligned with the current market data.

» Summary results of the market analysis were reviewed with you on November 23, 2010.


Market Assessment Process

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Extract Market Data

» Multi-Industry Pricing Database» Over 150,000 Data Points» Select Most Comparable Data Sets

Review Market Data

» Review of database query» Normalize financial data» Review Service Levels» Subject Matter Expertise Review

Collect Client Delivery Data

» Service Scope» Service Levels

Collect Client Financials

» Unit Volumes» Cost Center Information» Activity Mapping» Overhead allocations

Client Documentation

Market Data, EquaTerra Experience, & Analysis

Unit Rate Comparison


Data Collection

» Financial Review – Review current 09/10 catalog rates and forecasted expenses– Determine applicable Resource Units*– Summarize financial data into a cost allocation model– Calculate individual resource unit price points– Conduct a modified activity mapping exercise to allocate time to categories

including Mgmt. and Admin., Architecture and Standards, Processes and Tools, Consultative Services, Projects, Enhanced Services and Lights-on

– Remove non “Lights On” expenses from SoM financials

» Data Center Operational Review– Review Configuration Management Data Base (CMDB)

• Volumes and asset inventory

*Resource Unit is a term used to identify a discrete unit of IT service being delivered to a client.

Usually separately priced/costed

Usually listed in the service catalog

Usually has a set of defined service parameters and service levels

5


Market Comparison

» Develop Market Comparison Data Set

– Extract comparable financial metrics from EquaTerra’s database

– Include several state/local deals based on publically available documents

– Normalize data based on geographies, size and service levels as appropriate

– Remove outliers, adjust for comparable scope, level of transition/transformation, etc.

– Create market range and median pricing for each comparable resource unit/rates

» Develop Qualitative Analysis

– Provide qualitative/observation review of market range comparison

– Note any anomalies to client’s cost profile

– Apply subject matter expertise on trends in the industry

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3

21 1

Industries Represented in Data Sets

State/Local (6)

Energy (5)

Manufacturing (4)

Pharmaceutical (3)

Other (2)

Financial Services (1)

Retail (1)

Industry Mix (Numbers in the chart indicate the number of comparable data sets by industry used in this benchmarking)

» EquaTerra reviewed the current contract pricing and compared it to 6 state/local pricing structures as well as 16 similar commercial IT agreements signed over the past three (3) years.


Data Normalization

» Data normalization is the process of making all data that is being compared as close as possible to the data being benchmarked.

– SoM data required minimal normalization• Removed HW/SW costs from some market data sets to align with SoM Resource

Units (Servers)

• Added some HW/SW costs in other Resource Units (Storage)

– Commercial data includes a 25% normalization to reflect onshore only rates based on an assumption of 50% of work is labor, 50% of labor is typically performed offshore, and offshore rate are 50% of onshore rates.


Total Base Case Build-up

9

$72.8

$2.1

$14.4 $4.3

$60.6

Total Expense Data Collected in All

Functions

Data Center NetworkingTechnical ServicesScheduling and Data Entry

Data Center Budget

Total Base Case Build-Up

Note: Although Bull/Assist 2200 are no longer offered, the expenses are still in the base case for this exercise until the overheads and facilities can be reallocated


Calculation of Compared Expenses

10

$52.7

$72.8

$4.2

$6.3

$2.0

$7.6

$13.1

$39.6

Base Case Teradata Bull/Assist 2200 Data Exch. Gateway Server Pass Through Scope Adjustments Market Compare

In-Scope Vs. Retained Breakdown


SoM Cost Calculations

11

CountResource

UnitSoM Rate

Average of Monitoring

($67)

Average of 10/100MB

($33)

Average of 1GB Copper

($35)

Average of 1GB Fiber

($160)

Average ofUs

($11)Combined

Rate

Cost Adjustment

Factor

Cost Adjusted

RateMonthly Cost ($k)

Total Cost ($k)

Unix 468 Instances $499 1.00 1.56 1.27 0.08 5.85 $737 4.8% $772 $361 $4,335Unix - Virtual 30 Instances $399 1.00 0.00 0.00 0.00 0.00 $466 4.8% $488 $15 $176Unix - Remote 24 Instances $599 0.00 0.08 0.00 0.00 2.13 $599 4.8% $628 $15 $181Unix - Hosting Only 22 Instances $0 1.00 1.18 0.91 0.00 4.05 $181 4.8% $189 $4 $50Wintel 1107 Instances $312 1.00 1.75 0.82 0.00 2.29 $489 4.8% $513 $568 $6,810Wintel - Virtual 410 Instances $250 1.00 0.00 0.01 0.00 0.00 $317 4.8% $332 $136 $1,636Wintel - Remote 78 Instances $374 0.00 0.33 0.23 0.00 1.41 $374 4.8% $392 $31 $367Wintel - Hosting Only 472 Instances $0 1.00 1.42 1.36 0.00 2.44 $186 4.8% $195 $92 $1,102Citrix 92 Instances $374 1.00 2.15 0.68 0.00 2.19 $558 4.8% $585 $54 $646

Total 2703 Instances $1,275 $15,302

SAN 596,199 GBs $3.10 $2.66 -13.7% $2.30 $1,369 $16,424NAS 104,870 GBs $2.00 $1.66 -13.7% $1.43 $150 $1,803

Total 705,931 GBs $1,519 $18,227

Mainframe Processing 230 MIPS x $1,576 0.0% $1,576 $362 $4,350Mainframe Storage 1548 GBs x $95 0.0% $95 $147 $1,760

Total $509 $6,110

Total Compared Costs $39,639


Unix Instance

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State/Local Comparative Costs ($/Mth)

Observations

» This includes eight (8) VMS and one (1) OS400 instances. Although the support requirements of VMS and OS400 differ, the overall impact on the rate is insignificant.

» Although the SoM services brochure for Unix support refers to servers, the billing is based on number of instances in the CMDB.

Commercial Comparative Costs ($/Mth)

$552 $764 $915

SoM$772

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

Low Average High

UNIX Server Support (Per OS Instance)

$790 $857 $925

SoM$772

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

Low Average High

UNIX Server Support (Per OS Instance)


Unix Instance

Typical Delivery» 24/7 live support» Leveraged service provider facilities» HW/SW has been normalized out of the price for

deals where the hardware and software are bundled into the price

Typical Scope» Operations management» Server administration and operations» Production control and scheduling» Performance monitoring and tuning» Capacity planning and management» Technical support» Change management» Installs, moves, adds and changes» Equipment maintenance support» Maintain test environments» DBA support» Middleware support

13

Comparable Market Set»There are six (6) comparable commercial data sets and two (2) comparable state/local data sets. Of the state/local data sets, two (2) data sets are outsourcing and no data sets are internal cost allocations.»All data sets have been updated in the last three (3) years.»Resource Unit count for SoM is 468. Comparable range is 69 to 710 instances.»Service levels are assumed to be comparable, although Client SoM incurs no financial penalties for missed SLAs.»Hardware/software is not included in the market comparables.


Unix Instance - Virtualized

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Observations

» The market typically does not differentiate between virtualized and non virtualized support. The support for stand alone vs. virtualized instances is not considered to be significantly different. Cost savings from server virtualization is typically driven by reduced HW and HW maintenance expenses.

» Most state/local and commercial organizations that EquaTerra has reviewed have virtualization rates of 20-30%


$552 $764 $915

SoM$488

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

Low Average High

UNIX Virtual Server Support (Per OS Instance)

$790 $857 $925

SoM$488

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

Low Average High

UNIX Virtual Server Support (Per OS Instance)


Unix Instance - Virtualized




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Comparable Market Set»There are six (6) comparable commercial data sets and two (2) comparable state/local data sets. Of the state/local data sets, two (2) data sets are outsourcing and no data sets are internal cost allocations.»All data sets have been updated in the last three (3) years.»Resource Unit count for SoM is 30. Comparable range is 69 to 710 instances.»Service levels are assumed to be comparable, although Client SoM incurs no financial penalties for missed SLAs.»Hardware/software is not included in the market comparables.


Unix - Remote

16


Observations


$845

SoM$628

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

Low Average High

UNIX Remote Server Support (Per OS Instance)

$935

SOM$628

$0

$100

$200

$300

$400

$500

$600

$700

$800

$900

$1,000

Low Average High

UNIX Remote Server Support (Per OS Instance)


Unix - Remote

Typical Delivery» 24/7 live support

Typical Scope» Operations management» Server administration and operations» Production control and scheduling» Performance monitoring and tuning» Capacity planning and management» Technical support» Change management» Equipment maintenance support

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Comparable Market Set»There is one (1) comparable commercial data set and one (1) comparable state/local data set. Of the state/local data set, one (1) data set is outsourcing and no data sets are internal cost allocations.»All data sets have been updated in the last three (3) years.»Resource Unit count for SoM is 24. Comparable range is 16 to 44 instances.»Service levels are assumed to be comparable, although Client SoM incurs no financial penalties for missed SLAs.»Hardware/software is not included in the market comparables.


Unix – Hosting Only

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Observations

» SoM compares favorably in the hosting only rates. SoM costs in the hosting only area (network, facilities, monitoring, and security) appear to be competitive.


NotAvailable

$371 $507 $644

SoM$189

$0

$100

$200

$300

$400

$500

$600

$700

Low Average High

UNIX Hosting Server Support (Per OS Instance)


Unix – Hosting Only


Typical Scope» Network Connectivity» Power» Rack Space» Security» Monitoring

19

Comparable Market Set»There are two (2) comparable commercial data sets and zero (0) comparable state/local data sets. »All data sets have been updated in the last three (3) years.»Resource Unit count for SoM is 22. Comparable range is 22 to 57.»Service levels are assumed to be comparable, although Client SoM incurs no financial penalties for missed SLAs.»Hardware/software is not included in the market comparables.


Wintel Instance

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Observations

» Although the SoM services brochure for Wintel support refers to servers, the billing is based on number of instances in the CMDB.


$313 $416 $728

SoM$513

$0

$100

$200

$300

$400

$500

$600

$700

$800

Low Average High

WINTEL Server Support (Per OS Instance)

$237 $338 $582

SoM$513

$0

$100

$200

$300

$400

$500

$600

$700

$800

Low Average High

WINTEL Server Support (Per OS Instance)


Wintel Instance




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Comparable Market Set»There are six (6) comparable commercial data sets and five (5) comparable state/local data sets. Of the state/local data sets, three (3) data sets are outsourcing and two (2) data sets are internal cost allocations.»All data sets have been updated in the last three (3) years.»Resource Unit count for SoM is 1107. Comparable range is 144 to 3557 instances.»Service levels are assumed to be comparable, although Client SoM incurs no financial penalties for missed SLAs.»Hardware/software is not included in the market comparables.


Wintel - Virtual

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Observations

» The market typically does not differentiate between virtualized and non virtualized support. The support for stand alone vs. virtualized instances is not considered to be significantly different. Cost savings from server virtualization is typically driven by reduced HW and HW maintenance expenses.

» Most state/local and commercial organizations that EquaTerra has reviewed have virtualization rates of 20-30%


$313 $416 $728

SoM$332

$0

$100

$200

$300

$400

$500

$600

$700

$800

Low Average High

WINTEL Virtual Server Support (Per OS Instance)

$237 $338 $582

SoM$332

$0

$100

$200

$300

$400

$500

$600

$700

$800

Low Average High

WINTEL Virtual Server Support (Per OS Instance)


Wintel - Virtual




23

Comparable Market Set»There are six (6) comparable commercial data sets and five (5) comparable state/local data sets. Of the state/local data sets, three (3) data sets are outsourcing and (two) 2 data sets are internal cost allocations.»All data sets have been updated in the last three (3) years.»Resource Unit count for SoM is 410. Comparable range is 144 to 3557 instances.»Service levels are assumed to be comparable, although Client SoM incurs no financial penalties for missed SLAs.»Hardware/software is not included in the market comparables.


Wintel - Remote

24


Observations


$224

SoM$195

$0

$50

$100

$150

$200

$250

$300

$350

Low Average High

Windows Remote Server Support (Per OS Instance)

$291

SoM$195

$0

$50

$100

$150

$200

$250

$300

$350

Low Average High

Windows Remote Server Support (Per OS Instance)


Wintel - Remote


Typical Scope» Operations management» Server administration and operations» Production control and scheduling» Performance monitoring and tuning» Capacity planning and management» Technical support» Change management» Equipment maintenance support

25

Comparable Market Set»There is one (1) comparable commercial data set and one (1) comparable state/local data set. Of the state/local data sets, one (1) data set is outsourcing and no data sets are internal cost allocations.»All data sets have been updated in the last three (3) years.»Resource Unit count for SoM is 78. Comparable range is 356 to 381 instances.»Service levels are assumed to be comparable, although Client SoM incurs no financial penalties for missed SLAs.»Hardware/software is not included in the market comparables.


Wintel – Hosting Only

26


Observations

» SoM compares favorably in the hosting only rates. SoM costs in the hosting only area (network, facilities, monitoring, and security) appear to be competitive.


$371 $461 $552

SoM$195

$0

$100

$200

$300

$400

$500

$600

Low Average High

Windows Hosting Server Support (Per OS Instance)

$249

SoM$195

$0

$100

$200

$300

$400

$500

$600

Low Average High

Windows Hosting Server Support (Per OS Instance)


Wintel – Hosting Only


Typical Scope» Network Connectivity» Power» Rack Space» Security» Monitoring

27

Comparable Market Set»There are two (2) comparable commercial data sets and one (1) comparable state/local data set. Of the state/local data sets, one (1) data set is outsourcing and no data sets are internal cost allocations.»All data sets have been updated in the last three (3) years.»Resource Unit count for SoM is 472. Comparable range is 5 to 322 instances.»Service levels are assumed to be comparable, although Client SoM incurs no financial penalties for missed SLAs.»Hardware/software is not included in the market comparables.


Citrix

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Observations


NotAvailable

$525 $564 $603

SoM$585

$0

$100

$200

$300

$400

$500

$600

$700

Low Average High

CITRIX Server Support (Per OS Instance)


Citrix



Typical Scope» Operations management» Server administration and operations» Production control and scheduling» Performance monitoring and tuning» Capacity planning and management» Technical support» Change management» Installs, moves, adds and changes» Equipment maintenance support» Maintain test environments» Citrix application support» Middleware support

29

Comparable Market Set»There are two (2) comparable commercial data sets and zero (0) comparable state/local data sets. »All data sets have been updated in the last three (3) years.»Resource Unit count for SoM is 92. Comparable range is 6 to 93 instances.»Service levels are assumed to be comparable, although Client SoM incurs no financial penalties for missed SLAs.»Hardware/software is not included in the market comparables.


SAN

30


Observations

» In most organizations, supported SAN is increasing 25 – 50% per year while staffing remains constant. This typically leads to a resource unit price decrease of 20+% per year.

» Includes Expenses for SAN 1, SAN 2, CAS, BCV, SRDF and backup and recovery


$1.23 $1.58 $2.12

SoM$2.30

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Low Average High

Storage SAN (Allocated GB)

$0.75 $2.51 $4.98

SoM$2.30

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

Low Average High

Storage SAN (Allocated GB)


SAN

Typical Delivery» 24/7 live support» Leveraged service provider facilities» HW/SW has been normalized into the price for deals

where the price does not include HW/SW.

Typical Scope» Storage media management» Perform backup» Perform restore» Allocate storage» Monitor activity» Manage off-site media» Execute data migration/archival» Participate in disaster recovery

31

Comparable Market Set»There are five (5) comparable commercial data sets and five (5) comparable state/local data sets. Of the state/local data sets, three (3) data sets are outsourcing and two (2) data sets are internal cost allocations.»All data sets have been updated in the last three (3) years.»Resource Unit count for SoM is 596,199. Comparable range is 53,000 to 900,000 GB.»Service levels are assumed to be comparable, although Client SoM incurs no financial penalties for missed SLAs.»Hardware/software is included in the market comparables.


NAS

32


Observations

» Use of NAS was reduced in 2010.


NotAvailable

$0.38 $0.52 $0.66

SoM$1.43

$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

Low Average High

Storage NAS (Allocated GB)


NAS

Typical Delivery» 24/7 live support» Leveraged service provider facilities» HW/SW has been normalized into the price for deals

where the price does not include HW/SW.

Typical Scope» Storage media management» Perform backup» Perform restore» Allocate storage» Monitor activity» Manage off-site media» Execute data migration/archival» Participate in disaster recovery

33

Comparable Market Set»There are two (2) comparable commercial data sets and zero (0) comparable state/local data sets.»All data sets have been updated in the last three (3) years.»Resource Unit count for SoM is 104,870. Comparable range is 57,000 to 423,000 GB.»Service levels are assumed to be comparable, although Client SoM incurs no financial penalties for missed SLAs.»Hardware/software is included in the market comparables.


Mainframe Production

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Observations

» State/Local comparisons are Unisys only rate. Commercial comparisons are blended platforms.


$918 $1,094 $1,244

SoM$1,576

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

Low Average High

Mainframe - Production/Test (MIPS)

$766 $1,258 $1,547

SoM$1,576

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

Low Average High

Mainframe - Production/Test (MIPS)


Mainframe Production

Typical Delivery» 24/7 live support» Leveraged service provider facilities» A mix of both dedicated and leveraged support» HW/SW is included in the price. Software is defined

as operating system, utilities and development tools

Typical Scope» Operations management» Console operations» Production control and scheduling» Performance monitoring and tuning» Capacity planning and management» Technical support» Database support and management» Maintain test environments» Change management» Installs/move/add/change» Equipment maintenance support

35

Comparable Market Set»There are four (4) comparable commercial data sets and three (3) comparable state/local data sets. Of the state/local data sets, all three (3) data sets are outsourcing and no data sets are internal cost allocations.»All data sets have been updated in the last three (3) years.»Resource Unit count for SoM is 230. Comparable range is 73 to 1,450 MIPS»Service levels are assumed to be comparable, although Client SoM incurs no financial penalties for missed SLAs.»Hardware/software is included in the market comparables.


Mainframe Storage

36


Observations

» State/Local comparisons are primarily Unisys only rates. Commercial comparisons are blended platforms.


$2 $7 $15

SoM$95

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Low Average High

Mainframe - Storage (Allocated GB)

$6 $21 $36

SoM$95

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

Low Average High

Mainframe - Storage (Allocated GB)


Mainframe Storage

Typical Delivery» 24/7 live support» Leveraged service provider facilities/equipment» HW/SW is included in the price

Typical Scope» Storage media management» Perform backup» Perform restore» Allocate storage» Monitor activity» Execute data migration/archival» Participate in disaster recovery

37

Comparable Market Set»There are four (4) comparable commercial data sets and two (2) comparable state/local data sets. Of the state/local data sets, two (2) data sets are outsourcing and zero (0) data sets are internal cost allocations.»All data sets have been updated in the last three (3) years.»Resource Unit count for SoM is 1,528. Comparable range is 2,000 GB to 95,000 GB»Service levels are assumed to be comparable, although Client SoM incurs no financial penalties for missed SLAs.»Hardware/software is included in the market comparables.


Conclusions

» Based on the Market Analysis performed by EquaTerra we have observed the following:

– SoM rates are within state and local market range for most resource units

– SoM rates are within commercial market range (adjusted to normalize off-shore labor components) for most resource units

– Costs for hosting only services are lower than market averages

– Resources allocated to mainframe services appear disproportionately high

– Changes in allocations that favors the cost structure of one resource unit will negatively impact the cost structures of other resource units

– The benchmarking data as constructed excludes $13.1M of SoM Data Center costs that are considered by SoM to be over and above the operational support typically included in outsourcing contracts. Our data for Data Center outsourcing contracts includes efforts and dollars associated with the functions listed in the excluded $13.1M.

– Although considerable work has been accomplished in physical consolidation of Data Centers, we believe there is still opportunities to further consolidate and optimize service delivery, either through internal or external optimization

38


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About EquaTerraEquaTerra sourcing advisors help clients achieve sustainable value in their IT and business processes. Our advisors average more than 20 years of industry experience and have supported over 2000 transformation and outsourcing projects across more than 60 countries.

Located throughout North America, Europe and Asia Pacific, we have deep functional knowledge in Finance and Accounting, HR, IT, Procurement and other critical business processes. EquaTerra helps clients achieve significant cost savings and process improvement with internal transformation, shared services and outsourcing solutions.

Contact us

Mike Moore

(619) 980-0215

[email protected]


Legal Disclaimer

The Resource Unit data provided is collected in the course of EquaTerra engagements, and is collated in anonymous normalized aggregate form to synthesize a market view. EquaTerra makes no claim that this is representative of the broader market beyond the universe of EquaTerra engagements. By its very nature, Resource Unit pricing data gathered from EquaTerra clients is likely to be more client-advantageous than if the data were sourced from transactions where the buyer did not engage a third party advisory firm such as EquaTerra. For some Resource Units, the data available to EquaTerra is sparse or aging, and in these cases range data provided will be flagged as deriving from limited or compromised base data. The data provided constitutes a lagging indicator of that section of the market that EquaTerra has advised, and the recipient should note carefully that in the current market conditions pricing is extremely volatile and past pricing data may not be a reliable guide to forward pricing. Where EquaTerra offers an opinion as to the trending of pricing, that opinion is derived from the direction of changer of the data available combined with an interpretation of available broader economic, social and political indicators, and should be treated with caution as speculation rather than as fact. The data in this report is provided solely for the internal use of the recipient, and may not be disclosed to any third party including but not limited to the recipient's clients and the recipient's third party advisors in part or in whole in any form. EquaTerra disclaims any liability whether direct or consequential for any actions or decisions the recipient may make in reliance on the data herein.

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State of Michigan GL-ITC Project Market Assessment and Benchmarking Process Overview

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