It applies to most private residential and small-scale business electric use. Rationale would be getting quite political, as you might imagine. But I suppose there are several justifications that are given.

One is to offset the cost to the consumer for phasing out fossil fuels. Coal has been shut down and wind and storage and new nuclear is being built. Politically it has been presented as a matter of fairness; poor people are least able to pay for increases or to retrofit. A kind of wealth redistribution. (Though when you remember large corporately-run farms are included in the subsidy it's maybe not the most progressive form of redistribution.)

In Quebec where they have a great surplus of hydroelectric they also partly subsidize residential electricity with the profits of the surplus sale to the United States. The energy is so cheap there than resistive heating is cheaper than natural gas for home heating. Avoiding dependence on oil and gas imported from either the US or western Canada, or rather trying to lessen that dependence, is a standing issue for both Quebec and Ontario.