Found a work-around for the Address Book "On My Mac" issue - a thread about the OPPOSITE problem led me to it.

In preferences if you select "On My Mac" to be the default account, then you will see the entry in the Address Book for "On My Mac"suddenly appear if it was previously missing - then you can create local groups. After that you can put the default back to iCloud and the local "On My Mac" category remains. IMO, this is a bug - since it was listed as an account in prefs, it should have always appeared in the list in Address Book's UI.