The Consolidate Blank Lines item is available via the Reformat Text button on the collection toolbar and via the Format menu, except when the Recycle Bin tab is active. It replaces all blocks of consecutive totally blank lines with a single blank line. Only lines that have no characters at all are consolidated. Lines that consist solely of whitespace are not consolidated.
If you want to consolidate lines that have whitespace too, first use Trim Whitespace from Paragraphs to remove the whitespace, and then use Consolidate Blank Lines.